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Michael Hunt

Inflation (reply From Boe)

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Hello ........, many thanks for your e-mail. In simple terms inflation is at best an average measure of changes in prices and cannot represent everyone's personal experience of price changes.

The consumer Prices Index, (CPI), represents a basket of different goods and services that reflects the patterns of expenditure across a wide range of households throughout a year and reflects the relative importance of those items in their “shopping basket”. When the price data are collected each month it is often the case that some prices have gone down while others have gone up. The CPI provides an overall picture of changes in prices reflecting an average household’s expenditure pattern. There are hundreds of items in the basket, but it does not include every individual good or service available.

Certainly utility prices and the cost of some other essential items have grown faster than the prices of some non essential items. But as I have already explained the CPI is intended to be a representative basket of goods for a representative household.

I hope that this goes some way to explain why individual’s perception of inflation may be different from the official figures as the CPI reflects an average rate of inflation and may not reflect your own particular spending pattern. If you were interested to read more about the composition of the CPI you may wish to access the National Statistics website: :lol::lol::lol::lol::lol:

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You will usually find there's different tiers of people who reply to those emails. I would go back and ask them to explain money growth, Gold, houses and the true definition of inflation. Infact, I would mark his email as a C- as he/she fails to understand inflation.

I will be writing to the BoE again very soon, following up on my questions a year ago. I will be rather direct on how they are failing, what they should not have done (as said back in July before the IR cut).

I don't expect a thorough reply.

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I wrote to the BOE once, the answers I got to my questions/comment were weak and more like political flam than anything else.

Parking charges at individual sites round here have doubled. Inflation marches on just like the printing presses.

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In my experience unless you can get directly in touch with the head honcho there's little point making contact at all. The muppets who reply to e-mails know less than we do.

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"as the CPI reflects an average rate of inflation "

Seems fair enough to me. The BOE needs a steady rate in order to make interest rate decisions, not a rate with huge commodity spikes in it?

These commodities will eventually affect the CPI?

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You will usually find there's different tiers of people who reply to those emails. I would go back and ask them to explain money growth, Gold, houses and the true definition of inflation. Infact, I would mark his email as a C- as he/she fails to understand inflation.

I will be writing to the BoE again very soon, following up on my questions a year ago. I will be rather direct on how they are failing, what they should not have done (as said back in July before the IR cut).

I don't expect a thorough reply.

Can you post your letter so that others can also send similar (but not identical) ones?

Billy Shears

Edited by BillyShears

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Thing that gets me with how they calculate the inflation figure is that stuff like clothes and TV's are included;

but the thing is you can DECIDE how much you spend on clothes and TV's - its not really a factor.

you CANT really decide how much you spend on fuel, utility bills and council tax for example. If fuel goes up in price I cant take a shorter route to work. If I want to heat my house, I cant do it using less gas - I simply have to pay more to do the same.

The calculation is totally flawed, and clearly the aim is a low figure :(

Edited by Pete95

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Thing that gets me with how they calculate the inflation figure is that stuff like clothes and TV's are included;

but the thing is you can DECIDE how much you spend on clothes and TV's - its not really a factor.

you CANT really decide how much you spend on fuel, utility bills and council tax for example. If fuel goes up in price I cant take a shorter route to work. If I want to heat my house, I cant do it using less gas.

The calculation is totally flawed, and clearly the aim is a low figure :(

that is the point i made to them but it just falls on death ears ,the whole establishment is corrupt .nuff said

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While we are on this subject, can anyone tell me if the RPI figures include the cost of food and energy? I just want to know as my final salary pension scheme was pulled last week and is now based on RPI + .75 %.

Initially I was thankful that at least it wasn't to be based on the CPI but I remember house prices are included in the RPI so when the correction comes it will act as a deflationary pressure even on these figures.

You just can't win can you! <_<

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Thing that gets me with how they calculate the inflation figure is that stuff like clothes and TV's are included;

but the thing is you can DECIDE how much you spend on clothes and TV's - its not really a factor.

you CANT really decide how much you spend on fuel, utility bills and council tax for example. If fuel goes up in price I cant take a shorter route to work. If I want to heat my house, I cant do it using less gas - I simply have to pay more to do the same.

The calculation is totally flawed, and clearly the aim is a low figure :(

Not only that, but the rising price of necessities vs luxuaries disproportionately affects lower income households, because they spend a larger proportion of their income on necessities.

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Here's how to understand inflation.

Imagine a small economy with 20 people.

In this economy there are 100 widgets manufactured each year and nothing else. The population only needs/wants widgets. Widgets are only exchangeable for pound notes. Pound notes cannot be used for anything else. Widgets can be used for one year and then are worthless.

The bank in this economy issues each person 5 one pound notes. So there are 100 one pound notes in circulation.

Each widget will therefore cost one pound.

The economy expands and now produces 120 widgets per year. This is GDP growth. The bank issues a further 20 pounds into circulation. Fine....each widget still costs one pound.

The following year no growth occurs, but the bank issues a further 120 pounds. There are now 2 pounds for each widget, so each widget costs 2 pounds. This is an inflation of the money supply (increase beyond GDP growth) resulting in higher prices.

In the uk I believe that the money supply is currently expanding at 12% per year. Its 8% in the US and Eurozone. UK growth is say 2%, so inflation is 10%.

If you are receiving 5% net on your ISA you are actually losing out to the tune of 5% per year on your spending power overall.

The only way around this is to put your money into commodities which match or exceed inflation. Only trouble is that the treasury may take some of the capital gains from you when you eventually convert it back to paper.

Gold sovereigns are not subject to CGT!

http://www.hmrc.gov.uk/manuals/cg4manual/CG78308.htm

JP.

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CPI:

http://www.statistics.gov.uk/statbase/Product.asp?vlnk=868

http://www.statistics.gov.uk/pdfdir/cpi0306.pdf

In his Pre-Budget Report statement on 10 December 2003, the Chancellor of the Exchequer changed the UK inflation target to one based on the Consumer Price Index (CPI), which was previously called the UK Harmonised Index of Consumer Prices (HICP). The CPI inflation target is set at 2 per cent.

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Here's how to understand inflation.

Imagine a small economy with 20 people.

In this economy there are 100 widgets manufactured each year and nothing else. The population only needs/wants widgets. Widgets are only exchangeable for pound notes. Pound notes cannot be used for anything else. Widgets can be used for one year and then are worthless.

The bank in this economy issues each person 5 one pound notes. So there are 100 one pound notes in circulation.

Each widget will therefore cost one pound.

The economy expands and now produces 120 widgets per year. This is GDP growth. The bank issues a further 20 pounds into circulation. Fine....each widget still costs one pound.

The following year no growth occurs, but the bank issues a further 120 pounds. There are now 2 pounds for each widget, so each widget costs 2 pounds. This is an inflation of the money supply (increase beyond GDP growth) resulting in higher prices.

In the uk I believe that the money supply is currently expanding at 12% per year. Its 8% in the US and Eurozone. UK growth is say 2%, so inflation is 10%.

If you are receiving 5% net on your ISA you are actually losing out to the tune of 5% per year on your spending power overall.

The only way around this is to put your money into commodities which match or exceed inflation. Only trouble is that the treasury may take some of the capital gains from you when you eventually convert it back to paper.

Gold sovereigns are not subject to CGT!

http://www.hmrc.gov.uk/manuals/cg4manual/CG78308.htm

JP.

I tried to explain inflation to my other half, eventualy I got a pile of change, 1p,2p etc, I gave my Missus 30p and kept 30p myself. we then had an auction for a glass of beer. The glass of beer fetched 30p (surprise).

I then gave my Missus and myself another 20p, and held another auction for the same glass of beer. Guess what the same glass of beer fetched 50p.

Click :blink::blink:

Dawning understanding :D:D

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One thing I don't understand. The money supply is growing, but where is it going? Its not going in my pocket thats for sure? So who's chasing the goods?

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Thing that gets me with how they calculate the inflation figure is that stuff like clothes and TV's are included;

but the thing is you can DECIDE how much you spend on clothes and TV's - its not really a factor.

Also, inflation would show that TVs are falling in price because they are but in reality people spend the same or even more to buy a bigger TV or one with newer gadgets, inbuilt digital, HD etc etc so people don't generally pay less for these products when they buy them. The same with most electronic gadgets which are the primary reason for such low inflation.

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Err housing/debt bubble

Exactly.

The new money is injected into the economy as debt (or loans from banks).

Much of this has gone into housing over the last few years.

Its all a big con because once people have borrowed more to buy their house they still have to service their debts with income that isn't rising as fast as the money supply.

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Exactly.

The new money is injected into the economy as debt (or loans from banks).

So its not REAL money then? Debt can count for inflation?

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Its all a big con because once people have borrowed more to buy their house they still have to service their debts with income that isn't rising as fast as the money supply.

People draw in their spending on discretionary items like furniture, DIY, etc. More companies go to the wall, higher unemployment, less opportunity to negotiate higher wages. Its a downward spiral, and we're screwed!

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Question.

I spend quite a chunk of my income on petrol, so a rise in the price of petrol would obviously affect my buying power as a consumer. However I cant say that I buy a new TV or DVD player every week, so a fall in price of TV's cannot have the same effect as a rise in petrol prices.

Does the inflation measure reflect the fact that the rise in cost of some products will have more of an impact than the fall in price of others?

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
      • up 2.5%
      • up 5%



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