…By Henry George for TDPel Media.
The Organisation for Economic Co-operation and Development (OECD) has warned that the UK is on track to experience one of the highest inflation rates among the G20 nations this year.
Additionally, the Institute for Management Development’s (IMD) World Competitiveness Ranking revealed that the UK has handled inflation worse than its global competitors thus far.
Concerns Mount Over Mortgage Market
As concerns grow regarding the state of the mortgage market, Chancellor Jeremy Hunt was questioned about the possibility of providing substantial assistance to mortgage payers through tax relief.
However, Mr. Hunt expressed reservations, stating that injecting large sums of money into the economy would result in a significant increase in the inflation rate.
He emphasized that while he sympathizes with the difficulties faced by individuals experiencing rising mortgage costs, the government would not take any actions that could prolong inflation.
Distinguishing Between Core Inflation and Headline Inflation
It’s important to understand the difference between core inflation and headline inflation.
Core inflation refers to the rate of price increases for all commodities, services, and goods in the economy excluding food and fuel.
On the other hand, headline inflation includes food and fuel prices in its calculations, encompassing all changes in the values of goods and services.
Calculating Inflation and the “Basket of Goods”
Inflation is calculated by monitoring changes in the cost of living, which involves examining the prices of a “basket of goods” and services commonly used by British consumers.
The contents of this basket are determined through the annual Family Expenditure Survey conducted by the Office for National Statistics (ONS), which collects data on people’s shopping habits.
Based on these habits, the government tracks the prices of the 1,000 most common goods in the UK on a monthly basis, noting any changes in their values.
The percentage increases are then multiplied by the assigned weight of each item, providing insights into how price changes impact consumers’ budgets.
Core Inflation Offers Stability
Core inflation is considered a more stable rate compared to headline inflation since it excludes the volatile and fluctuating prices of food and fuel.
By focusing on core inflation, economists can better assess underlying price trends and gauge the overall health of the economy.
Understanding inflation, differentiating between core and headline inflation, and accurately measuring price changes are crucial for policymakers and economists in managing economic stability and making informed decisions.