This morning has again brought home the cost of living crisis that is affecting the UK. We can open the analysis by looking at this from the perspective of the Bank of England. It used to target the inflation measure below.
The annual rate for RPIX, the all items RPI excluding mortgage interest payments (MIPs), is 8.0%, up from 7.7% last month.
The first issue is that we have broken new ground as we have an 8 big figure for a consumer inflation measure. We were expecting it but perhaps not quite this quickly. Now let me show you what the Bank of England now targets.
The all items CPI annual rate is 5.5%, up from 5.4% in December.
As you can see in the exchange they have “gained” some 2.5% or rather we have lost it. For the purposes of the establishment this is quite a win as the perception of inflation is reduced. I say perception because reality is unchanged it is all about how we measure it. As the group Pilot put it back in the day.
It’s magic you know
Never believe it’s not so
It’s magic you know
Never believe it’s not so.
There are other ways they will consider it a win as for example in the present situation RPIX would be more than treble its target and in fact is the present level of the CPI (5.5%) above it. Whereas the CPI is a lower 3.5% above its target. Whilst that is bad enough it is all about such gains for the establishment.
The next planned move was to replace the above with this and again you can see why.
The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 4.9% in the 12 months to January 2022, up from 4.8% in the 12 months to December 2021.
As you can see they managed with this measure to trim a little more off their inflation reading. In this instance by telling what is a lie about housing costs for owner occupiers. If you are to have a reliable inflation measure then you need a decent measure of housing costs and you do not need to take my word for it as here is something from the European Central Bank this morning.
Housing costs account for the single largest share of people’s spending and disposable income, according to two consumer surveys.
Curious how they have managed to “forget” them for a couple of decades in their inflation measure is it not? That is quite some time to have an oversight and it is the measure the UK adopted called CPI.
Changes in January
The energy price issue got slightly worse as Northern Ireland caught up with the rest of us.
Combined with the April 2021 increases, these latest rises resulted in 12-month inflation rates of 18.8% for electricity and 28.1% for gas in October 2021. In January 2022 these rates increased slightly to 19.2% for electricity and 28.3% for gas, although the overall contribution from electricity, gas and other fuels was unchanged at 0.59 percentage points. The increase in the rates for electricity and gas was because of changing energy prices in Northern Ireland.
A sign of the times I guess. Also at a time of supply chain issues we should not be surprised to see that the January Sales were weaker this time around.
The 2.9% fall in prices in January 2022 was smaller than the 4.8% fall a year earlier…..Prices usually fall sharply between December and January due to sales ; prior to the pandemic, between 2016 and 2020, the average monthly fall in January was 3.8%. Therefore, the 2021 monthly fall of 4.8% was slightly higher than usual, and the 2022 monthly fall of 2.9%.
In their desperate rush to promote the CPIH measure they have made a mess of past comparisons but it looks to have been the weakest sales season for over 3 decades. The same happened in the furniture section.
Prices fell by 0.5% on the month, compared with a fall of 1.6% a year ago. The effect was mainly concentrated in glassware, tableware and household utensils (0.03 percentage points), with a further 0.01 percentage points coming from tools and equipment for house and garden.
Also we are seeing the beginnings of the influence of rising rents.
This was split between owner occupiers’ housing costs (0.04 percentage points) and actual rentals (0.02 percentage points), with increases of 0.3% on the month, compared with 0.1% a year earlier.
We need to step back for a moment because the official measure is not a measure of rents right now. It measures them over the last 18 months or so. Thus the reports that we are seeing quite a bit of rental inflation right now will only dribble into it as 2022 progresses. Whereas Zoopla are telling us a very different story.
The rate at which rents are rising reached a 13-year high of 8.3% in the final three months of 2021.
The average annual rent for those agreeing a new let is now £744 higher than pre-pandemic levels.
As you can see this is a bit of a mess and is not really a monthly inflation measure at all. It gets worse when these numbers are claimed to be a guide to owner-occupied housing costs and are used as 19% of the inflation measure ( CPIH). Putting it another way they end up with about a quarter of that inflation measure being rental numbers they have little faith in (otherwise they would put a monthly number in rather than a smoothed version over 18 months).
House Prices
So far there has been no relief from the upwards march in this area.
UK average house prices increased by 10.8% over the year to December 2021, up from 10.7% in November 2021. The average UK house price was £275,000 in December 2021, which is £27,000 higher than this time last year.
It is extraordinary really that we are seeing larger moves than in the boom that led to the credit crunch.
On a seasonally adjusted basis, average house prices in the UK increased by 0.9% between November and December 2021, following an increase of 2.0% in the previous month.
Producer Prices
I am afraid there is no relief to be found here because the fading of growth that was happening at the end of 2021 seems to have gone away.
On the month, the rate of output inflation was 1.2% in January 2022, up from 0.3% in December 2021 (Table 1). The monthly rate has been positive for 16 consecutive months, since October 2020……..On the month, the rate of input inflation was 0.9% in January 2022, up from 0.1% in December 2021 (Table 3). The monthly rate has remained positive for 17 consecutive months since September 2020.
Comment
The situation of rising inflation is one that is creating quite a cost of living crisis now. I am sure you all have your own examples of going to buy something which has shot up in price. The official measures are sadly letting us down as I have warned they would. Much of it is simply through the issue of housing costs which they either ignore or indulge in a fantasy. No measure is perfect – a fact which has been ignored in the official propaganda campaign against the RPI- but even if we accept the criticisms against it and adjust it to say 7% it is still in my opinion the best measure of what is taking place.
It could have been modified as much of the issue concerns fashion clothing but the research into this was abandoned some years ago. Presumably it did not give the answer they wanted. But moving on there is a big deal from what at first may seem arcane issues. This is because if you get a wage rise or pension increase based on CPI then you are being left behind by inflation. and yes you will be worse off. The widely ignored CPIH will make you even worse off.
I am sorry to have to say that more is on its way and sadly attempting to drown your sorrows may only make it worse.
I’m sorry, but Heinekken, the world’s 2nd largest brewer, just warned it will raise prices for its beer by “courageous” amounts to offset rising commodity and freight costs. For Heinekken, aluminum is a big input costs (for its cans). ( @JavierBlas )
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Okay…
Hi farnesbarnes
if you drop the i you get story which is what we have been told. There was no basis for claiming that inflation would be short-term.
Hello Shaun,
Well it going to get worse before it gets worse that’s for sure.
As this ripple spreads through out the world’s economy much gnashing and wailing will be heard but ignored by the elites who will point out that “we’re all in this together” .
I see reports that champagne sales have boomed (!!).
As index linked price rises then kick in ( such as BT 3.5% + CPI ) I would have thought the hard pressed consumer will pull their horns in . Takes a little while to get started but once going I fear the worse.
Forbin
PS: Welcome to WW 3 , apparently the Russians could’nt get out of bed but might make it by tea time!
Forbin,
Dear oh dear, I dont know BOE is going to sort this out they said they thought inflation would top at at about 7.2% but I dont know whether they meant CPI or RPI probably the former and we are now seeing RPI at 7.8% and in some cases dependant on what your own inflation is i.e. if you motor a lot inflation willl be well over 10% twice as high as wage inflation, or circa that data.
Its a terrible situation at the moment I can see another hike in interest rate rise at the next meeting and some may call for over 0.25%, so instead of 4 hikes at that amount a hike of 0.5% ! That will certainly make people think twice about buyinng a property as there will be more to come. OK 75% are on fixed rates but some will be up for renewing and new mortgages will be higher.
I can see some of the retailers profits being hit by inflation they cannot all pass such huge rises on maybe the clothes retailers will be hit the hardest, Marks & Spencer now fallen over 20% from its high point near its last results.
We are in for a hard time this year pensioners will feel the pinch on a minimum state pension of 3.1% those silver haired pensioners will be angry over the triple lock being lopped.
shaun, I like to follow your twiitter feed but twitter have changed how anyone views the page you have to register now to look at your feed so as I am not a registered I cannot see the feed. I log on can see a few of the top post then get a add up asking me to either log in or create and account. Pitty as I dont want to start a twitter account just at thiis time and I reall likes to follow your posts.
just press logon than hit x in top left corner and they let you see a few more tweets.
rinse and repeat as many times as you want its a pain but i ain’t signing up
Shaun,
Reality bites no matter what. Inflation rate is quoted people will find their disposable income shrinking. When price resistance reached expect quality to suffer the ugly crapification label used in the USA.
Hi Chris
I think I have stumbled upon a version of that. I like or rather should say used to like Toffee Crisp bars. I was looking at a 4 pack at the supermarket the other day but did not buy because as well as being smaller they are not the same.I have found a Reddit thread explaining that in the changes they lost the crisp bit. A fair explanation in my opinion.
As I’ve often written here you show me your rate of inflation and I’ll show you mine. I am mortgage free and don’t drive so I’m fortunate in that respect. My inflation measure is Baxter’s Pea and Ham Soup (it’s the crack cocaine of tinned soup) £2 for 3 at Christmas £1.30 each now. Most things I’ man enough to handle but when it’s affecting my favourite soup it’s just not on. Even my local food bank is now charging at £5 per week volunteering there has certainly open my eyes.
I very much fear it’s going to get worse as un and under employment is allowed to let rip to squeeze out inflation. It’s all they know.
Some food banks will struggle to feed the long que of people and I suspect some retailers wont be giving as much away and reducing price of items such as dalaged tine of soup rather than sening of to food banks. Morrison started this a few years ago selling odd shaped vegetables cheaper but I dont know whether they still do this.
Hello Peter, I hope you are back in good health.
I’ve been collecting donations for our local swap and share shed (mostly ambient foodstuffs) for a few months now; some folk donate to it too, and the majority simply take what they need. It would make you happy to know how decent the vast majority of people are in using it appropriately. My comment to you is that there is no sign of any reduction in items (quantity or range) that the major retailers are offering us, and other such voluntary groups yet. I understand the role of ‘on shelf availability’ versus ‘acceptable waste’ that many retailers try to balance (I spent many years in manufacturing; indeed I worked for Heineken, mentioned by Shaun himself above); it’s some of their key indicators in ensuring customer satisfaction and supply chain effectiveness. It’s a retailing ‘no no’ to leave blank shelf space, so as long as they keep to that ethos then food banks etc should (hopefully) continue to feel their support; accepting that we all saw many examples of product shortages in the last year or two (let’s see how the ‘supply chain issues’ unfold in the coming months/years). Wobbly veg; can’t speak about Morrison’s, but I know a 1.5Kg of quality wobbly carrots at Tesco is very cheap, tasty too; great for making the lentil soup etc 🙂
I do feel the extended credit ‘freedoms’ from the early 1980’s have finally caught up with our country, so can’t see the trend for food banks diminish any time soon, and that’s heartbreaking.
Regards, Iain
re “It’s a retailing ‘no no’ to leave blank shelf space”
well Sainsbury did for a while then got the spiffing idea to fill the empty spaces with large cardboard boxes with pictures on them like ” sweets selection here ” ( the shelf filled by the box ) , etc.
along with their special offers of two 500g pasta boxes for £2.00 , whilst on the main shelf 1kg box was £1.95
forbin
The old ‘special offers’ eh!? I’ve long understood that there’s an unfortunate lack of basic arithmetic skills in the adult population, and your example highlights this. I’d love reality to be different, but it partly explains many folks’ untenable relationship with debt.
The ’empty shelf’ thing; There’s an old Supply Chain team exercise called the “Beer game” (created in 1960’s USA I think) that shows the effect of a minor consumer demand change on various stages of the ordering chain i.e. Consumer -> Retailer -> Wholesaler -> Producer, where consumer demand changes from 10 to 8 units per week; but by the time the ‘demand signal’ hits the factory then over a few weeks the factory is expediting production of 100’s of additional units, or cancelling 100’s of orders (some of you will call it the ‘Bullwhip’ or ‘Forrester’ effect). It sounds ridiculous but it’s a very real issue in maintaining supply integrity….the lack of pasta on first lockdown being a cracking example of one facet of this ie. EVERYONE taking an extra bag of pasta caused a huge Supply Chain reaction; we later realised that was the issue, and not the much touted mass panic buying widely reported. What I learned in discussions with retailers was that they would rather take on the issue of ‘waste’ (aged stock/damage issues etc), that risk a customer walking to another retailer who could fulfil their entire shopping requirements. I have a lot of sympathy for those who manage supply chains, but as I said here yesterday, or day before, I don’t know the balance behind them taking time (and it can be painfully slow) to get ‘back to normal’ (in Covid world), and commodity/product ‘chancers’ taking the opportunity to fleece their customers. Fascinating and worrying times.
Iain
If Heinekken did do price rises. then they’d do them like this…
I’ve just barrelled a 40-pint ruby ale; ready to use from this time next week, & started a dark mild.
By the way, there have been a number of massacres of ethnic Russian civilians in Ukraine, with tacit govt. support, so, aside from the strategic overview, if Ukraine is protected by NATO arms, how much cheer will that give the far-right (are YOU watching Pavlaki: THIS is extreme right) militias, who already act with impunity.
Hi therrawbuzzin
I am very out of touch with that sort of thing. How much does home brewing work out per pint?
You can get kits which, with a kg of sugar you can make up to 40 pints for £12 or so, including sterilisation of equipment.
The price ranges right up to £30 & obviously these are far better quality.
So the range tends to be around 30p/pint to 75p/pint.
It should be brought to your attention that I live in Scotland, with its minimum alcohol pricing @ 50p per unit, so a 5%abv beer will cost an absolute minimum by law of £1.25 per 500ml, whether in can or bottle.
I usually go somewhere in the middle, as 30 years’ beermaking experience allows me to get the best from my kits.
The watchword with beermaking, as in grow-your-own, is, “patience,”
Some of my friends are pensioners, who like a beer, but I worry struggle to pay for it.
I don’t ask obviously, I just say, “Would you like to try my new beer?” & give them a couple of bottles.
Here’s a tip. though, beer bottles are nearly as expensive to buy as bottles of beer, so if you decide that you want to bottle a few pints off each barrel, you might as well buy bottles of beer & save the empties,
PROPER recycling!
Justin Trudeau & his wildest dream: