Tuesday, 29 April 2008

What is the True Rate of Inflation?

Gordon Brown as Chancellor and latterly as Prime Minister does boast about the low rate of inflation in comparison to the years under the Conservatives.

However, several years ago the Labour Govt. changed the measure of inflation from the Retail Price Index [RPI] to the Consumer Price Index [CPI] . As can be seen from the graph from the ONS website these rates of inflation do differ by a substantial amount.

The govt can only boast about low inflation when quoting the CPI because the index is made up of many non essential items or one off purchases. However, the old RPI consists of mortgage rates, fuel costs and basic food items - all the necessities of life. The rate of RPI compared to CPI is consistently higher e.g. Nov 2007 RPI = 4.3 % CPI = 2.1 %

I find it particularly interesting that the Govt quote CPI rate of inflation when it serves its own ends and then uses the 'defunct' RPI when to its advantage. Therefore when working out the rate needed to increase the state pension it will use the CPI. Many local govt/civil service pensions are increased annually by the RPI rate. But students' loans will have the interest rate calculated using the RPI rate.

In other words, it appears to me, that if the Govt have to pay out money then they use the CPI but if they are claiming money back from us or to award themselves pay/pension increases then its the RPI figures that are used. MP's pensions are the best available - and are costing taxpayers a fortune.


A Mother's Place is in the Wrong said...

Don't get me started Lady Thinker - I'm continually amazed and disgusted by the sneaky manoeuvres of the Government in financial matters. Whatever they do, whatever they want, we pay. M xx

Maggie May said...

This Government are the absolute end & that is all I'm going to say on the matter, but I can already feel my blood beginning to boil, & I'm going to get one of my pills before I explode!

Mark Wadsworth said...

Spot on, exactly.