The Office for National Statistics has announced that UK inflation fell to 4% in March. This is the UK Consumer Prices Index (CPI) annual rate of inflation, which was 4.4% in February. Meanwhile, Retail Prices Index (RPI) inflation, also went down but by less, from 5.5% to 5.3%. This is all for good surely? The fall is said to have eased pressure on the Bank of England to raise interest rates. Yet again, that’s something good as well. In further good news, the CPI is at a joint all time low – for the year.
The Office for National Statistics said the fall was due to supermarkets reducing their prices in March. Another way of looking at it is that prices are the same but their profits are down as the cut is possibly in response to January’s 2.5% rise in VAT. The British Retail Consortium tried to paint a rosy future, saying that falls in the price of air flights have helped to offset rises in energy costs and petrol. Great news, especially for those of us who heat our homes and use public transport or drive a car.
So, why don’t I sound happy despite all this good news? Well, inflation is still twice the Bank of England’s target rate and for the last 16 months has stayed at least 1% above it. While that is still the case, we will continue to hear calls for the Bank to raise interest rates, as this is their main policy tool to combat rising prices. When inflation is above average, it causes a powerful squeeze on disposable income and our spending.
Some members of the Monetary Policy Committee, who decide on interest rate levels, as well as other economists, say a rise would help combat rising prices. So paying higher mortgage payments will make prices drop? I’ve never noticed that if I spend less that the prices then start dropping. Have you? These experts even claim that inflation is high due to temporary factors, such as the recent rise in VAT. This is the inflation that has stayed above the Monetary Policy Committee’s target for almost a year and a half. Temporary? Aye, right, that’s temporary. The rise in VAT will no longer figure in inflation calculations at the beginning of next year. Again, that’s temporary?
Remember the CPI and RPI measures of inflation from earlier? The CPI measures changes in the price of consumer goods and services households purchase. The RPI includes items such as mortgage interest rates, buildings insurance, road fund licence and trade union subscriptions. The CPI does not. When mortgage payments change, so does the RPI and inflation. If you start paying higher interest the CPI stays steady and so does inflation. So, higher interest rates will see inflation stay the same at the very least.
Remind me, where was the good news in that inflation fall again?
In my manifesto, I say that we need politicians and experts to start using plain English when discussing the economy and money issues. We need to stop using meaningless phrases like ‘structural deficit,’ it’s just a deficit. This is the same as when you or I use our overdraft near the end of the month – we either spend too much or don’t earn enough to get by. The idea of a structural deficit serves a political function rather than an analytical one. The phrase is a pseudo-scientific concept that serves to legitimise cuts in public spending. The UK’s national debt as a share of its gross domestic product, the country’s earnings to keep things simple, was higher than it is now for 200 of the past 250 years. That’s since 1760. I’d say that means we can afford to fund our essential public services. If the country is bust, as some politicians claim, then it has been that way for along time. We’ve still managed though, haven’t we?
The UK is currently the world’s sixth largest economy and the third largest in Europe after Germany and France. Bust? I thought I was good with numbers. Maybe, as Disraeli said, there are three kinds of lies – lies, damned lies, and statistics. Let’s stop all this nonsense and talk in English that everybody understands. Let’s stop trying to spin or angle things to suit our own personal views.
Let’s see politicians start talking honestly with the people who pay their wages – the voters.
- For my views on the recent UK Budget, see the blog post A Simplifying Budget that’s Complicated.