FlightMan

Well, now you can calculate your own here:

National Statistics Online - Personal Inflation Calculator

Have fun learning the truth as to how much your personally being screwed.

MattW

Don't work for me

SJ_Skyline

You need the adobe SVG viewer:
Adobe - Adobe SVG Viewer download area

MattW

Ta

Didn't need that to tell me it was well above the official rate.

pslewis

Factor in how much your houses have increased in value and you are STILL WELL AHEAD!!

FlightMan

And in one line Pete, you have summed up New Labour's "economic miracle"

MattW

Pete as you well know %age increases mean your next move is more costly, so again inflation!!

Petem95

Didnt work for me either, but I would estimate its about 8-10%

I wouldnt be surprised if the ONS are recording all the data input, and maybe they'll release the true figure at some point....

Based on money supply having increased by about 14% per year, then inflation and growth should pretty much equal 14% if the economy is to be in balance.

With "official" inflation being about 2.5%, and growth being say 3% then thats a total of only 5.5%...

True inflation is probably about (14% - 3%) = 11%, so interest rates should be about that or more.. will be interesting to see what happens - I wonder if rates will get that high?

The fiddled extra-low "official" inflation figure allows too much money to exist in the economy, and clearly thats resulted in the monster housing bubble and a consumer spending spree. I dont know how things get back into balance, but from looking at when this has happened in the past possibly an extended period of very high interest rates is the answer?

Almost certain we are heading for a VERY large 'pop' at some poin the the [probably not too distant] future.

john banks

Petem95, perhaps you could help my understanding...

Once the real inflation becomes apparent, I'm wondering if the area under the curve of the interest rate IYSWIM does eventually do justice to the savers who were losing out when the interest rate was lower than true inflation (ie now)?

Petem95

John I'm really not 100% what the implications are of having had a period where the rate of inflation is significantly lower than the true figure. My understanding is that interest rates will have to be raised significantly to reign-in spending and reduce the amount of lending/borrowing, so the supply of new money falls back and things slowely get back into sync. The fact inflation has been artificially low for so long this time means that surely there will have to be a very significant correction at some point, and much more than just house prices will be affected.

Hopefully someone with a better understanding of the subject will be able to add for us (not sure who, possibly Suresh as he seems to have a good knowledge of finance related subjects?) as my understanding is not perfect although I find the area very interesting!

john banks

Thanks, I just try like I'm sure you do to try to understand the whole cycle and where you can win and lose!

hades

The other interesting point of course is that higher interest rates will tend to stifle growth, so hamper the economy ever "catching up" with the defecit . . .

To answer John's question, I don't think there will be any "correction" for area under the curve where people have gained/lost out in the past. Most commonly accepted economic models (Keynesian, Monetarist etc) run on the basis of effectively an inward/outward or circular flow with various factors feeding in (depends on which model as to which you believe) and various outputs (such as growth, inflation etc). Other than it may take several passes through the "loop" to regain equilibrium, they don't really show any hysteresis, IYSWIM.

The other way of looking at it, rather than considering macro-economic theory is to remember that it's all only statistical models of the main cycle that is really driven by the businesses and people of the country. Generalising, if they have (or can get) money now, most people will spend it, irrespective of what happened yesterday. If they don't they can't. Businesses tend to invest/tighten belts based on what they think will benefit them going forward, whilst they may learn lessons from the past.

Just my take, scary to admit I got my economics 'A' level about 15 years ago. . .

john banks

Thanks.

Suresh

I believe that the standardised CPI inflation figure is an internationally accepted and comperable measure. There is no fiddling going on in that sense.
Individual situations can differ of course as not everyone consumes the same goods as the basket measure.

Interest rates are comprised of inflation + the time value of money + credit risk premium/discount. Given that GBP interest rates other than the base rate are determined by financial markets based on supply and demand* and not by the Government - it is not possible for the government to fiddle inflation and the financial markets not to react. For example, if the markets thought that the value of money is declining by 10% per annum, then market rates would exceed this level to compensate, as Banks would not lend at rates lower than this. For reference, the free-market 1month GBP LIBOR rate is currently quoted at around 5.50%. The fiancial wizards in the market and investors generally don't think inflation is at 10% then. The relatively high nominal interest rate (market rate less inflation) is designed to encourage saving and possible consumption later rather than consuming/spending now.

* e.g. The LIBOR rate: London Interbank Offered Rate - Wikipedia, the free encyclopedia

I work in finance, but am not an economist.

Petem95

Thanks Suresh, I wasnt aware the CPI calculation was used elsewhere. Maybe if it is that goes some way to explaining why there's been a worldwide asset bubble over the last almost decade.

True, however when asset prices fall back significantly (ie house prices), that will in effect remove a huge amount of money from circulation, so would go some way to restoring things.