The ONS has announced this month’s inflation statistics:
The Consumer Prices Index (CPI) grew by 2.8% in the year to February 2013, up from 2.7% in January 2013. The change in the rate follows four consecutive months when it stood at 2.7%.
This is the first month without RPI as a headline statistic; following its decision to choose consistency over accuracy, RPI is no longer a designated “National Statistic”. Its annual growth is still reported, however, and it has fallen from 3.3 to 3.2 per cent between January and February.
The new replacement for RPI, RPIJ (which is calculated using the same data but a different, and more accurate, formula), showed the same change, dropping 0.1 percentage point, to 2.6 per cent.
The ONS has introduced a second new measure of inflation, CPIH, which aims to include the housing costs of owner-occupiers – something historically lacking from the CPI. It’s currently experimental, but with the housing costs weighted at 12 per cent of the total index, it could well show a more realistic measure of the cost of living for the average Briton.
For all of the last seven years, CPIH has actually been lower than CPI:
(The green line shows inflation in the cost of housing). That’s a surprising statistic, but may come from the fact that the measure for the cost of owner occupied housing is “rental equivalence”:
Rental equivalence uses the rent paid for an equivalent house as a proxy for the costs faced by an owner occupier. In other words this answers the question “how much would I have to pay in rent to live in a home like mine?” for an owner occupier.
Obviously, if you are paying rent, you are probably aware that it’s not quite as simple as asserting that the value of owning a house is no more or less than paying rent on the same house. Nonetheless, valuing the monthly “cost” of living in a house you own is notoriously tricky, and this is one of the most accepted ways of doing so. It will be a measure that is worth keeping an eye on.
Of course, the most important measure to pair inflation with is wage growth. And there, the news remains unfortunate. Regular earnings grew just 1.3 per cent in the last year, meaning that real wages continue to shrink at an alarming rate. That’s a trend which shows no sign of abating, and it is the biggest point in favour of the hard-money inflation hawks. We are all getting poorer, and have been for a while.