Inflation is worst for the worse off

"Essentials" increased in price by far more than the CPI last year.

Money broker Tullett Prebon has created an index of price inflation in "essentials" in Britain, which it's calling (unsurprisingly) the Tullett Prebon UK Essentials Index. It defines "essential" goods as:

  • Food, alcohol and tobacco
  • Council tax, water charges and home insurance
  • The costs of domestic heating and power, principally gas and electricity
  • Fuel, road tax and vehicle insurance
  • Train, bus and other public transport fares

(Yes, alcohol and tobacco are essentials.) Between them, those components make up 40 per cent of the RPI, with the other sixty per cent being non-essentials.

Defining the difference lets us take a look at how bad inflation is hitting just the act of day-to-day living. Tullett Prebon estimates inflation in essentials was 3.7 per cent over 2012, well above the CPI, which increased by 2.8 per cent. And, since wages have been rising below even CPI, the price of essentials has soared in comparison to income:

Between 2007 and 2012, nominal incomes expanded by 10% whilst the cost of essentials soared by more than 33%, meaning that the average working person would have been 17% worse off if he or she had spent the whole of their income on essentials.

Of course, few people do spend their entire income on essentials. However, with real incomes under pressure, and with the prices of essentials now increasing at annual rates of close to 4%, the proportion of household incomes going into essentials is clearly rising, and is set to continue to do so.

As the chart below makes clear, this is entirely a post-recession phenomenon:

It's been known that inflation is worse for the worse off for quite some time now, but it's largely been a fact bandied around by the far left. The Communist Party of Britain — that's the one which publishes the Morning Star — produced a Working Class Price Index in 2010, which made much the same point. That pegged inflation for the working class (which included a broad mixture of non-essentials as well) at over 10 per cent for some years.

This isn't quite the same point as the one made by those at the intersection of compassionate conservatism and inflation hawkishness, which is that high inflation disproportionately hits the poor. That may or may not be true — I'm inclined to think it does, but not as much as high unemployment and low growth does, and insofar as inflation hawks call for that trade-off they're being disingenuous — but what is true is that whatever the headline rate of inflation is, if you're poor, life is getting more expensive much faster than that indicates.

One final point (I think made originally by Left Outside) is that a closer look at the categories which count as essentials reveals a far greater extent of government control over prices than is normal. Council tax, road tax and almost all public transport fares are set (in aggregate) by the government; a massive proportion of the cost of alcohol, tobacco, fuel and heating and power is similarly driven by taxation.

As a result, standard understanding of inflation goes out the window. There is no intrinsic link between monetary policy and the rate of inflation for "essentials", because the prices aren't set by the market. It's a rare situation where the government could have its cake and eat it; it could implement expansionary monetary policy to boost demand, while at the same time capping, temporarily, rises in those direct regressive taxes and fares to below inflation.

But for that to happen, there first needs to be wider understanding of the problem. That's why the essentials index is an important piece of research, and worth keeping an eye on.

Updated to replace the giant picture of some rice with the chart which was actually supposed to be there.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Donald Trump ushers in a new era of kakistocracy: government by the worst people

Trump will lead the whitest, most male cabinet in memory – a bizarre melange of the unqualified and the unhinged.

“What fills me with doubt and dismay is the degradation of the moral tone,” wrote the American poet James Russell Lowell in 1876, in a letter to his fellow poet Joel Benton. “Is it or is it not a result of democracy? Is ours a ‘government of the people by the people for the people’, or a kakistocracy rather, for the benefit of knaves at the cost of fools?”

Is there a better, more apt description of the incoming Trump administration than “kakistocracy”, which translates from the Greek literally as government by the worst people? The new US president, as Barack Obama remarked on the campaign trail, is “uniquely unqualified” to be commander-in-chief. There is no historical analogy for a President Trump. He combines in a single person some of the worst qualities of some of the worst US presidents: the Donald makes Nixon look honest, Clinton look chaste, Bush look smart.

Trump began his tenure as president-elect in November by agreeing to pay out $25m to settle fraud claims brought against the now defunct Trump University by dozens of former students; he began the new year being deposed as part of his lawsuit against a celebrity chef. On 10 January, the Federal Election Commission sent the Trump campaign a 250-page letter outlining a series of potentially illegal campaign contributions. A day later, the head of the non-partisan US Office of Government Ethics slammed Trump’s plan to step back from running his businesses as “meaningless from a conflict-of-interest perspective”.

It cannot be repeated often enough: none of this is normal. There is no precedent for such behaviour, and while kakistocracy may be a term unfamiliar to most of us, this is what it looks like. Forget 1876: be prepared for four years of epic misgovernance and brazen corruption. Despite claiming in his convention speech, “I alone can fix it,” the former reality TV star won’t be governing on his own. He will be in charge of the richest, whitest, most male cabinet in living memory; a bizarre melange of the unqualified and the unhinged.

There has been much discussion about the lack of experience of many of Trump’s appointees (think of the incoming secretary of state, Rex Tillerson, who has no background in diplomacy or foreign affairs) and their alleged bigotry (the Alabama senator Jeff Sessions, denied a role as a federal judge in the 1980s following claims of racial discrimination, is on course to be confirmed as attorney general). Yet what should equally worry the average American is that Trump has picked people who, in the words of the historian Meg Jacobs, “are downright hostile to the mission of the agency they are appointed to run”. With their new Republican president’s blessing, they want to roll back support for the poorest, most vulnerable members of society and don’t give a damn how much damage they do in the process.

Take Scott Pruitt, the Oklahoma attorney general selected to head the Environmental Protection Agency (EPA). Pruitt describes himself on his LinkedIn page as “a leading advocate against the EPA’s activist agenda” and has claimed that the debate over climate change is “far from settled”.

The former neurosurgeon Ben Carson is Trump’s pick for housing and urban development, a department with a $49bn budget that helps low-income families own homes and pay the rent. Carson has no background in housing policy, is an anti-welfare ideologue and ruled himself out of a cabinet job shortly after the election. “Dr Carson feels he has no government experience,” his spokesman said at the time. “He’s never run a federal agency. The last thing he would want to do was take a position that could cripple the presidency.”

The fast-food mogul Andrew Puzder, who was tapped to run the department of labour, doesn’t like . . . well . . . labour. He prefers robots, telling Business Insider in March 2016: “They’re always polite . . . They never take a vacation, they never show up late, there’s never a slip-and-fall, or an age, sex or race discrimination case.”

The billionaire Republican donor Betsy DeVos, nominated to run the department of education, did not attend state school and neither did any of her four children. She has never been a teacher, has no background in education and is a champion of school vouchers and privatisation. To quote the education historian Diane Ravitch: “If confirmed, DeVos will be the first education secretary who is actively hostile to public education.”

The former Texas governor Rick Perry, nominated for the role of energy secretary by Trump, promised to abolish the department that he has been asked to run while trying to secure his party’s presidential nomination in 2011. Compare and contrast Perry, who has an undergraduate degree in animal science but failed a chemistry course in college, with his two predecessors under President Obama: Dr Ernest Moniz, the former head of MIT’s physics department, and Dr Steven Chu, a Nobel Prize-winning physicist from Berkeley. In many ways, Perry, who spent the latter half of 2016 as a contestant on Dancing with the Stars, is the ultimate kakistocratic appointment.

“Do Trump’s cabinet picks want to run the government – or dismantle it?” asked a headline in the Chicago Tribune in December. That’s one rather polite way of putting it. Another would be to note, as the Online Etymology Dictionary does, that kakistocracy comes from kakistos, the Greek word for “worst”, which is a superlative of kakos, or “bad”, which “is related to the general Indo-European word for ‘defecate’”.

Mehdi Hasan has rejoined the New Statesman as a contributing editor and will write a fortnightly column on US politics

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

This article first appeared in the 19 January 2016 issue of the New Statesman, The Trump era