To ask you to explain consumer inflation rates to me, pretty please??

[gloriousoldsheets]

I'm not academic, but trying to understand the basics of this.

So for example - food prices, clothes, other consumer goods. These go up every year, right?? How do I find out the percentage these went up in the previous year?? etc

I've tried to look online but it's gobbledegook to me.

Thanks

CPI is published by ONS every quarter, isn’t it?

www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/september2020

It’s called the CPI for consumer price index. It’s published every month but the % isn’t how much consumer goods increased that month alone, but rather how much it increased the 12months prior to that month.

www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/latest

CPI includes owner occupied housing....so you have to realise that the figure will be skewed upwards for as long as the U.K. has a housing crisis.

This article gives the basics www.google.com/amp/s/www.bbc.co.uk/news/business-12196322.amp

There's a weighted basket of goods and services based on what the average household buys and the change in the prices of those items feeds into the official inflation rate.

Different people might feel or experience different inflation rates, either because their buying patterns differ from the basket, or due to recall bias and a feeling of injustice that makes them take more notice of the things that have increased in value and gloss over those which have stayed the same or fallen in price, which does happen, particularly for things like technology and consumer goods (for example, we've bought 3 washing machines in 25 years, the first cost about £400 in 1995, the second about £250 in 2006 and the third about £380, but a more expensive brand in 2020, so cheaper even though there has been quite a lot of inflation in those 25 years.

See also the fall in oil and hence petrol prices a few years ago, even with recent increases they're still not up to the previous peak, but lots of people are complaining about how expensive petrol has become of late.

Thanks all

So when it says this -

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 2.1% in the 12 months to July 2021, down from 2.4% in the 12 months to June

It means that prices for food and general goods rose 2.1% in the 12 months from Jun 2020 to Jun 2021. Taking into account housing costs, which may skew it a bit??

Correct??

There are two measures. CPIH which includes housing and CPI which doesn’t. Also the older RPI which is only produced for historical consistency.
www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/july2021#consumer-price-inflation-data

Yes, that's the overall average. 'Owner occupiers’ housing costs' sounds like the cost of running your own property, rather than the general increase in property prices, so will include things like building insurance, maintenance and mortgage interest. Remember that interest rates were cut by quite a bit in March 2020, so will have a downward effect on inflation.

Also lockdown meaning that we've not been able to go shopping and clothes shops have had sales, along with Eat Out to Help Out, also pushes inflation down, even though things like food, petrol, utilities and council tax has gone up by more than 2.1%

I'm an Economics teacher. Why do you want to know - general interest or to settle an argument? Let me know and I will try to help.

@NeverTalkToStrangers How do I find the CPI for last 12 months rate then??

@Phineyj Neither. Basically, I'm on a low income (£15,000 p.a after tax), although I do have housing association level rent and get some discount on council tax.
I am trying to sort my finances out and do a long(ish) term budget. Bills like rent, gas and electric there's only so much I can do with them. I'm trying to work out the other stuff like food, clothes, Christmas etc. I know that for example a 4 pint carton of milk has risen 10p since last year, and clothes seem a bit more expensive. I want to be able to look at govt figures each year when I do budget and be able to say the rate of inflation has been around X% so my budget for eg food should go up by X%. Doesn't need to be exact.

Thanks everyone xx

If you're on a low income, you might find your personal inflation rate is quite a bit higher than the official rate, because you spend disproportionately more of your income on the things that rise fastest like food and energy and less on consumer goods that often get cheaper with time.

I'm not sure what you will achieve by adjusting your spending by the rate of inflation each year, because that's only one variable and you can make changes that outweigh the inflation rate by changing what you buy or where you shop, or asking for discounts on your broadband deal etc.

Ah OK - that's quite a hard question as i) everyone's personal inflation rate is different because we all buy different things and live different lifestyles and ii) inflation is a measure of what happened to prices on average in the past, and you want to find out what might happen in the future.

However, why don't you do a worst case scenario with 5% and a more realistic one (I hope) with 2.5%?

You can't realistically go to the level of "what will happen to milk prices?" without a crystal ball.

Good question though -- I'd be pleased if a student was thinking this way .

I should also add that some of the bills you mention will not rise at the level of inflation of consumer goods because there are controls on them e g. gas and electric prices are somewhat controlled (maybe less in future), the housing association rent may be set at a % of market rent, council tax rises depend on what the council decide to put it up by (I think Wesminster may cap the amount of the rise -- must look into this!) and so on.

As a general budgeting point though, doing the numbers on what the effect on your budget of a 5% price rise across the board would be is never a bad idea.

In your example, milk, you've seen yourself that it's gone up from around £1 to £1.10, which is far in excess of the CPI - so your budgeting needs to take into account the things that you actually buy, rather than the contents of the CPI 'basket'.

You also need to take into account as yet unknown pressures upon the manufacturing and supply chain of goods from Brexit, weather conditions affecting crops, political issues such as whether China is pissed off about something or is still in the acquisition stage of empire building and a whole load of other factors which, with all the will in the world, a figure which is used to show governmental 'success' in the previous year can't give you a fair indication.

Basically, if it's something you have no choice but to purchase, the chances are that it's going to go up by a lot more than CPI - so, food, electricity, transport costs, council tax unless there's a local election planned and the council is on good terms with Central Government, that kind of thing.

It might sound overly dramatic, but planning for a 5-10% increase in basic foods and household items is realistic for any given 12 month period. If it's too high a guesstimate, great, you have money left over to help with the other expenses that will have increased. Some retailers will try to avoid increasing the price visibly by reducing the amount sold - the 5kg boxes of Basics washing powder for £2.50 in 2013 are now 1.625kg for the same price, for example, and some headline items might be kept artificially low because people notice if they go up as much as the other items (piece of M&S thick cut steak that would do 4 servings was £10 six months ago, now £12.50, for example, or the £3 chicken in the Co-op has gone up to £3.95 or 2 for £7 in a similar time period).

Creating your own bespoke records and calculations will serve you better over time - that's why some older ladies have always recorded their shopping and the prices paid as part of household management; it allowed them to see over time and plan for future years based upon what they actually bought.

Thank you all so much for this, food for thought for sure xx