Posted: 15.01.08 in Blogging

Now I’m no economist by any means. But I have picked up a few things here and there. Firstly, there are several measures of inflation. Some are used for different purposes — rather like statistics, really. Statistics can be manipulated to support an idea; and furthermore different statistics can provide conflicting evidence in favour or against an argument.

So there are situations when using one measure of inflation is better than another. Most public sector workers will be expecting pay rises of at least the rate of inflation. This means they can afford the same things next year that they bought next year. So the government refers to the Consumer Price Index (CPI), which stands at 2.1%.

However, when working out the interest on student loans – which is linked to inflation – the government refers to the Retail Price Index (RPI), which has doubled in the last year to 4.3%.

How peculiar. Even within government, the rate of inflation differs by which one is more than twice the other.

RPI is measured by taking the prices of 600 items and services in 146 regions. These services include mortgages and loans. From this, the price rises (or falls) determine the index. It is thought that RPI is the most accurate measure of inflation. CPI is calculated in a more complicated way — sampling through many different factors, such as location, item, item, and outlet, and are weighted from coefficients drawn from samples of household expenditure. All rather complicated, and similar in some ways, yet yield spectacularly different results. Odd then, that the government use both. Oh well…

Lesson of the Day

The adoption of double standards is perfectly fine.

  1. Weiran says:

    The rate taken is calculated form a particular month in the year (I think March), unfortunately for us the inflation that month was quite high. However, we’ve been paying under the odds for a long time now for our interest rates, so why didn’t you complain when that was happening?

  2. Steve says:

    RPI has been consistently high for a long time it seems – and in any case it appears consistently higher than the CPI.

    I don’t really understand what you mean by paying under the odds: so far as I am aware, the rate has always been linked to the RPI, which is more often than not higher than the CPI, I believe.

    What appears more unfair is that student loan interest is charged at this higher rate when public sector workers are being given a lower-than-RPI-rate rise. As someone who could have a public sector job, this is something of concern.

    If you still feel, in response to your question, that I just want the constant rub-of-the-green, then you obviously didn’t read my lesson of the day!

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