Consciousness of Sheep
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If you are one of millions of struggling households, inflation is all about prices. More to the point, despite statistics to contrary, since the crash of 2008 we have seen the cost of living increase even as our incomes stagnate.
But suppose you are a politician with an election to win. You could simply deny that prices are rising, of course. This is risky, though, as you may be exposed as a liar (not that lying seems to matter much these days). What you need is the cooperation of one or more esteemed organisations to rig the data in such a way as to make it seem that prices have increased by much less than they actually have.
Ordinarily, this process goes on unobserved by the wider public. We remain largely ignorant of how inflation is calculated. Who, for example, gets to decide which goods and services are included in the ‘basket of items’ whose prices are checked? Why, for example, does the CPI (the measure the government uses) basket include things like i-pads that relatively few of us buy, but exclude things like rent and mortgage repayments that most of us do? Clearly, the power to choose which items are included and excluded is important.
The trouble is that economists, politicians and journalists treat the headline inflation figure as gospel. Wage rises, tax rates, social security payments and the funding of public services are all determined by the headline inflation figure. So an artificially low inflation rate can have socially-damaging consequences.
Deciding on the items in the basket is but one way in which the inflation rate can be fudged. A more pernicious approach is to record rising prices as if they were falling. In a recent blog post, Richard Heys, Deputy Chief Economist at the Office for National Statistics gives us an indication of how this can be done:
“The research showed that between 2010-2015 our current estimates for telecoms prices charged to businesses were broadly unchanged. However, while businesses were being charged the same price, the bandwidth they had access to and the data they downloaded had significantly increased. As they were getting more for the same price, effectively the price had fallen.” (My emphasis)
It turns out that this sleight of hand is used across a range of technologies from cars to computers and TVs to washing machines. Getting ‘more’ for the same price is treated as prices going down. By this logic, if you were to buy a 1970s Volkswagen Beetle, it would be free because it wasn’t fitted with enhancements like power steering, electric windows and a smartphone docking port that are standard today. The point, however, is that the technology they are comparing prices against is obsolete. We have no choice but to buy the TV set, broadband package, electricity and food that is on sale today – the fact that it is deemed better than we would have got for the same price ten or twenty years ago is irrelevant. What matters is what we have to pay now.
Even using the official inflation rate, UK wages have stagnated for the longest period since the Napoleonic wars. Perhaps one reason for Brexit (and Trump in the USA) is that the real cost of living – all of the things our incomes have to cover – has been rising far more than our political masters and the “Westminster Village” commentariat want to publicly acknowledge.
As you made it to the end…
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