UK Cost of Living Increases: 9.5%

Monday, June 16, 2008 | 06:45 AM

By now, you are probably tired of reading me rail on and on about how government data fails to accurately portray the reality of inflation, and therefore GDP. I don't have particularly good things to say about NFP data either.

You should not, however, believe that such accounting legerdemain is confined to the USA. Over the weekend, an article in the UK Telegraph noted that The Real Cost of Living Index: 9.5 per cent; it had the subheading: "Why official figures don't tell half the story."

It is not that there is any grand conspiracy going on in either the US or the UK. It is just that the official measurements of inflation fail to capture the reality experienced by its citizens. Over the years, the  politcos in charge have directed the statisticians who run BEA, BLS, Census, etc. to alter the models they work with. Over the years, this has worked to incrementally to show more of the good stuff (employment and growth), and less of the bad stuff (inflation, unemployment) than would be warranted by an truly objective read of the data.

Whenever you read criticism of legitimate critique of government data as "tinfoil hat/conspiracy theorists," you know you are reading a disingenuous hackery.  I do not know any credible BLS critic who thinks some dark cabal is pulling the levers to generate whatever numbers they want -- instead, it is a case of what John Williams of calls "Pollyanna creep."

Here is your Ubiq-cerpt™:

"Rising food and fuel prices, as well as increased taxes and other household bills, mean the average family must cope with inflation that is twice as high as official estimates, according to new research by The Daily Telegraph and, the price comparison website. Taking all these factors into account, the Real Cost of Living Index (RCLI) is rising at 9.5 per cent.

No wonder hard-working families wonder how the Retail Price Index (RPI) can be only 4.2 per cent and the Government's preferred measure of inflation – the Consumer Price Index (CPI) – claims inflation is only three per cent.

One explanation is that CPI does not include council tax or mortgage costs – which are major outgoings for many families. Both costs are included in the RCLI, which sets out to give realistic weightings to rising costs, as experienced by an average family."

Interesting stuff . . .

Food Costs
Click for larger graph


via the Telegraph


The Real Cost of Living Index: 9.5 per cent
Emma Wall
Telegraph,11:23pm BST 13/06/2008

British families fear inflation is running out of control
Edmund Conway, Economics Editor
Telegraph, 1:27am BST 13/06/2008


Monday, June 16, 2008 | 06:45 AM | Permalink | Comments (13) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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"By now, you are probably tired of reading me rail on and on about how government data fails to accurately portray the reality of inflation, and therefore GDP."

NO -- I'm not tired of it. It's my favorite hobby horse, too. RAIL SOME MORE!

When inflation is understated and growth is overstated, the error is cumulative. Thanks to compounding, it makes a HUGE difference whether the long-term GDP growth rate is 2% or 3%. If inflation measures are suppressed to the tune of 1% by statistical legerdemain, then we may believe we are growing a robust 3%, when the truth is a crappy 2%. Among other things, operating under such an illusion spells doom for SocSec and Medicare.

Thanks to fiat currency, we already live in a world of money illusion -- our unit of measurement, the dollar, is constantly stretching like a rubber ruler. Adding growth illusion -- the belief that growth is healthier than it really is -- encourages unaffordable spending and a megalomaniacal belief in a U.S. "superpower" which may be rotting away internally, as the former Soviet Union did (the CIA thought Soviet GDP was twice as large as it turned out to be, after the collapse).

Falsified statistics aren't merely bad policy. They're a deadly risk to security and prosperity.

Posted by: Jim Haygood | Jun 16, 2008 7:48:18 AM

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