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True Cost Of Living Measure Shows Inflation At The Gallop

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Anyones wages rising at this rate?

I've left the economics until last today and it's real cold towel time folks. We've said here before that the Government's official measure of inflation, the Consumer Price Index (CPI), is fast losing credibility. The cost of living is rising but the CPI is not formulated to reflect this. Instead we should be looking at the Office of National Statistics' very own GDP deflator - a figure that measures the gap between nominal GDP and real GDP, a gap accounted for by price rises across the whole economy, not just a basket of goods.

This figure shows prices this quarter are rising at their fastest rate since 1996. The annual rate is now 3.4pc - well above the average CPI rate of 2.2pc. It's clear that the CPI's basket does not accurately reflect the cost of living for the average Briton - let alone the family hit by record gas bills, massive leaps in council taxes, school and university fees and jumps in the price of fresh food. If you're feeling skint but can't understand it, here is at least part of the answer.

# damian.reece@telegraph.co.uk

http://www.telegraph.co.uk/money/main.jhtm...8/26/ccom26.xml

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The GDP Deflator measures the degree to which the government is overprinting money.

velocity x money supply = real GDP x GDP deflator.

Velocity is really the number of times the amount of money changes hands and is usually between 1 and 2.

Money supply has been rising at typically 12% in recent years. This is actually the REAL rate of house price increases contrary to the 20% or so the government and all the lying banks have been talking about.

If real GDP growth the velocity haven't changed, then the deflator is a measure of the rate of expansion of the money supply. In a situation where there is no debasement of the money supply (GDP increases are matched identically to money supply increases), the GDP deflator would be constant.

What we're seeing is that the government wants an excuse to raise interest rates, probably to keep the pound price of gold high. They have, therefore, switched from quoting the equally nonsense CPI to the higher GDP deflator.

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Guest wrongmove

What we're seeing is that the government wants an excuse to raise interest rates, probably to keep the pound price of gold high. They have, therefore, switched from quoting the equally nonsense CPI to the higher GDP deflator.

That is an interesting take on things - usually the government is accused of artificially lowering quoted inflation. Good to see velocity mentioned - I am not very up on this, but I know that talking about money supply in relation to inflation is pretty meaningless without also considering velocity. Could you elaborate a little GM ?

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  • 301 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% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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