Fraser Nelson

The truth behind inflation

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Is Brown right on inflation? TGF UKIP appeals for help: is it correct to say as he did in the Observer and on Marr that inflation is 4% in America, 3% in Eurozone and 2% in Britain?  I was thinking of Fisking the interview – but soon worked out it would be longer than the transcript. And perhaps Brown’s statistics are not supposed to be taken literally, like John Prebble’s books or the EU’s accounts. But for those who care, here’s the story on inflation.

 

It jerks around a lot, and Brown is lucky to have Britain in a dip and America in an upswing last month. The figures he referred to were reported by various countries. But crucially, definitions vary. The best comparable version is produced by the OECD (excel, click here) in its consumer prices index. This gives the closest you’ll get to the truth.

 

First, let’s discard monthly fluctuations and look at the last 12 months (ie, 2007). The UK was on 2.3%, US 2.8% and Eurozone 2.1%. – so our inflation was not far behind Americas and worse than EU’s. For this year, the OECD predicts UK 2.2%, US 2.7% and EU 2.5%. The huge differences Brown points to don’t exist. But did anyone seriously think otherwise?

 

Presenting blips as trends is one of Brown’s conjuring tricks. The other is the “metric switch”– ie, comparing apples with pears. It’s a small point, but he also deployed this by telling Marr that inflation was over 10% in the early 1990s and 2% now. What he didn’t say the 10% figure was for RPI inflection (for three months in 1990) where his 2% figure is the new CPI index he uses. An honest comparison would have said RPI peaked at 10.9% and is 4.3% now.

 

Two final points. Iain Dale says that people’s experience is that of rather pernicious inflation – no matter what Brown says. This is because a) this year’s inflation is on the back of last year’s high inflation and b) Brown is using the deflated CPI which is now two points behind RPI (which almost all of us grew up calling inflation).  The 4.3% RPI figure would square a lot better with people’s experience.

 

In the end all the number fiddling in the world won’t help because, as the FT puts it, “the UK continues to have the nastiest embedded inflation problem of any developed economy.” Read the rest in this Alphaville post.

Written byFraser Nelson

Fraser Nelson is the editor of The Spectator. He is also a columnist with The Daily Telegraph, a member of the advisory board of the Centre for Social Justice and the Centre for Policy Studies.

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