Inflation: It's worse than it seems

Low wage growth + High price growth = Misery.

Inflation around the government's target of 2 per cent - or even up at 3-4 per cent as it has been recently - does not sound too bad but people are complaining about making ends meet. Part of that is the squeeze on incomes which are rising more slowly than prices. Yet lurking behind the innocuous-sounding headline rates of change for inflation, and smooth words of reassurance from the Bank of England, is a harsher reality. Several items have more than doubled in price since the Bank was made responsible for inflation and interest rates in 1997, despite the headline measure only increasing by one-third in that period and the annual rate averaging barely 2 per cent.

Overlay from Timetric

In the early 2000s, earnings were rising faster than inflation but the pattern changed in 2007. Earnings growth has slowed dramatically while the rate of price increases has risen. Indeed, from the start of 2008, prices have risen by 15 per cent while average earnings have increased by only 5 per cent. It's no wonder that people are feeling the squeeze. The squeeze probably feels worse as we tend to notice the items which are rising in price strongly! The chart below shows all the top level components of the index - and a considerable variation in the rates of inflation among the different goods and services. Some components have fallen since 1997 - prices are actually lower than 15 years ago - while others have risen by much more than the average. By far the largest riser has been education - a combination of university fees (which rose in 2006), private school and nursery fees, and evening classes.

Overlay from Timetric

The story is more striking at the next level of disaggregation. Since 1997 (our charts have set May 1997=100), transport insurance has more than tripled in price and fuels (we show gas) have more than doubled. But more surprising are the price rises of some run-of-the-mill items such as postal services (up 94 per cent since 1997), petrol (+134 per cent), cigarettes (+137 per cent) and train/air tickets (+113 per cent). As if to prove the point that basics have been hit hard, chocolate, the jam on your bread, and fish and chips are among the largest risers in the food category and have risen by more than double the aggregate rate of inflation (up 36 per cent as measured by the CPI).

UK CPI: High Rising Components 1997-2012 from Timetric

Too sanguine? Bank of England chief Mervyn King (photo: Getty Images)

Lauren Buljubasic is an analyst at Timetric, provider of economic data visualisation and analysis

Photo: Getty
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Who will win in Stoke-on-Trent?

Labour are the favourites, but they could fall victim to a shock in the Midlands constituency.  

The resignation of Tristram Hunt as MP for Stoke-on-Central has triggered a by-election in the safe Labour seat of Stoke on Trent Central. That had Westminster speculating about the possibility of a victory for Ukip, which only intensified once Paul Nuttall, the party’s leader, was installed as the candidate.

If Nuttall’s message that the Labour Party has lost touch with its small-town and post-industrial heartlands is going to pay dividends at the ballot box, there can hardly be a better set of circumstances than this: the sitting MP has quit to take up a well-paid job in London, and although  the overwhelming majority of Labour MPs voted to block Brexit, the well-advertised divisions in that party over the vote should help Ukip.

But Labour started with a solid lead – it is always more useful to talk about percentages, not raw vote totals – of 16 points in 2015, with the two parties of the right effectively tied in second and third place. Just 33 votes separated Ukip in second from the third-placed Conservatives.

There was a possible – but narrow – path to victory for Ukip that involved swallowing up the Conservative vote, while Labour shed votes in three directions: to the Liberal Democrats, to Ukip, and to abstention.

But as I wrote at the start of the contest, Ukip were, in my view, overwritten in their chances of winning the seat. We talk a lot about Labour’s problem appealing to “aspirational” voters in Westminster, but less covered, and equally important, is Ukip’s aspiration problem.

For some people, a vote for Ukip is effectively a declaration that you live in a dump. You can have an interesting debate about whether it was particularly sympathetic of Ken Clarke to brand that party’s voters as “elderly male people who have had disappointing lives”, but that view is not just confined to pro-European Conservatives. A great number of people, in Stoke and elsewhere, who are sympathetic to Ukip’s positions on immigration, international development and the European Union also think that voting Ukip is for losers.

That always made making inroads into the Conservative vote harder than it looks. At the risk of looking very, very foolish in six days time, I found it difficult to imagine why Tory voters in Hanley would take the risk of voting Ukip. As I wrote when Nuttall announced his candidacy, the Conservatives were, in my view, a bigger threat to Labour than Ukip.

Under Theresa May, almost every move the party has made has been designed around making inroads into the Ukip vote and that part of the Labour vote that is sympathetic to Ukip. If the polls are to be believed, she’s succeeding nationally, though even on current polling, the Conservatives wouldn’t have enough to take Stoke on Trent Central.

Now Theresa May has made a visit to the constituency. Well, seeing as the government has a comfortable majority in the House of Commons, it’s not as if the Prime Minister needs to find time to visit the seat, particularly when there is another, easier battle down the road in the shape of the West Midlands mayoral election.

But one thing is certain: the Conservatives wouldn’t be sending May down if they thought that they were going to do worse than they did in 2015.

Parties can be wrong of course. The Conservatives knew that they had found a vulnerable spot in the last election as far as a Labour deal with the SNP was concerned. They thought that vulnerable spot was worth 15 to 20 seats. They gained 27 from the Liberal Democrats and a further eight from Labour.  Labour knew they would underperform public expectations and thought they’d end up with around 260 to 280 seats. They ended up with 232.

Nevertheless, Theresa May wouldn’t be coming down to Stoke if CCHQ thought that four days later, her party was going to finish fourth. And if the Conservatives don’t collapse, anyone betting on Ukip is liable to lose their shirt. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.