NationStates Jolt Archive

Okay here's the thing. My Uncle thinks he is a bit of an economist, and he believes that the rate of inflation in Britain is about 10% a year...that's about 8% higher, on average about the UK inflation rate over the past 5 or so years.

Now I don't think he is right mainly because, average wages increase by about 4-5% a year, which means in real terms I would loose out (don't ask me to do the maths) every year by half the rate of inflation over ten years I would not be able to afford the things I could in the past. Pan that out over 20 years I'm going to be in poverty...surely the two things can't match up.

Don't bet me wrong I'm sure the government lies to us about this but it's also in it's best inteests to keep the inflation level accurate.

So intelligent people of the NS board in my uncle right. Any people clever with maths it would be great for some calculations.

Eh... are you asking us to prove your uncle wrong? To do that we would need to know why he thinks the rate of inflation is 10% per year.

It's possible that some products, those that he is most concerned about, have increased in price by 10% so that it seems to him that there is a great deal of inflation, but that on the whole those price increases are not common to every good on the market.

10% is far, far too high for any developed nation. If inflation reached 10% annually, chances are the currency would bottom out due to lack of investor confidence.

My guess, judging by how sturdy the pound is, would be around 3 - 3.5%.

To do that we would need to know why he thinks the rate of inflation is 10% per year.

It's possible that some products, those that he is most concerned about, have increased in price by 10% so that it seems to him that there is a great deal of inflation, but that on the whole those price increases are not common to every good on the market.

Well wrong or right, just asking for peoples opinions really.

Is there any reason for the government to lie about inflation apart from deneying an economic crisis which would be obvious to everyone, what would be the benifit?

I've thrown the idea of inflation be distorted to everyones consumer needs, but he sort of buys the point. However I suppose what I'm really asking is am I wrong. Am I so naive that I've been missing this big con all my life?

It's not likely that a government will get away with outright lying about information on the economy for long because you have a number of independent groups also studying the economy.

The problem isn't outright lying, the problem is convenient interpretation. Inflation, growth, productivity, etc are in themselves fairly solid concepts but each has a few legitimate ways to be measured. And even after getting the figures there is a question of how to interpret them.

In short, I doubt any government can keep up a lie for too long but, then again, economics isn't an exact science so what's a lie afterall?

Not possible. The economy simply couldn't sustain 10% inflation, and there's no way in hell the government could cover it up if it was.

However, certain categories within the overall measure of inflation can easily swing by 10% up or down, especially food and energy costs. However, the numerical value of these is small compared to inflation in other, larger categories and so is not a particularly abnormal move.

That's why the US PPI/CPI have two categories, core and regular. Core CPI/PPI factors out these food/energy costs and are a better inflation indicator.

He could be correct if he stretches the definition of inflation to include wage increases, labor costs, and slowing productivity growth. But that's a real stretch and doesn't really reflect inflation, just things that can possibly contribute to it.

Doesn't look like your uncle is right. Your inflation rate is currently 2.2% and your wage increases exceed that so you have some real increase in earnings.

Average wage earnings in Britain aregrowing at a rate of 4.9 percent, more than double the current inflation rate of 2.2 percent. House prices, which remain the biggest barometer of personal wealth here, surged by 4.6 percent in the fourth quarter of last year. http://www.iht.com/articles/2000/01/14/boe.2.t.php

More info here;
http://business.scotsman.com/topics.cfm?page=2&tid=431

Yes there is a very valid reason to lie about the inflation rate. It keeps people happy and people, taken as group and not as individuals, are too dumb to notice the real inflation rate. A nice simple rule to apply to all countries is to double your governments figures to find the real rate. Roughly. That and most governments are using old methods to analyze inflation data that isn't based on things we buy today, completely ignores the greater value of modern products (ie, a computer today =/= a 1990 computer. That prices have dropped insanely while quality has improved tremendously, which has 0 effect on inflation).

The government not only lies, but doesn't even calculate the rate properly in the first place.

Blauschild, not true. If a government lied and said inflation was lower than it was, then consumption would lower (aggregate demand), which would in turn lower inflation even more, and cause unemployment to skyrocket. No, governments don't try to claim there's lower inflation than there is.

Inflation is generally calculated by judging the increase in cost of a "basket" of items that the average person is likely to buy. And, there are some methods of calculation that do take into account changes in quality, and even for the calculations that don't use that, they are mostly based on the quality of last year or two years ago, not 1990.

And btw, a 10% inflation is sustainable. It's sustainable until it gets aroud 17-18%, then you go into hyperinflation and it jumps to 100%, then 10,000%, then 1,000,000%.

Umm... Find an anal retentive little old lady who keeps all her shopping dockets and see how much things cost a few years ago. It's not feasible to lie about inflation for very long. It's not as if no one will notice.

If inflation is ten percent then seven years ago things only cost half as much as they do now. Can you remember seven years ago? Did things cost half as much then? If not, then you don't have ten percent inflation.

In Britian the reserve bank aims for inflation of around 2.5% a year. This is called inflation targeting.

Maybe your uncle is living in the past when inflation did reach double digits a generation ago.

Okay here's the thing. My Uncle thinks he is a bit of an economist, and he believes that the rate of inflation in Britain is about 10% a year...that's about 8% higher, on average about the UK inflation rate over the past 5 or so years.

Now I don't think he is right mainly because, average wages increase by about 4-5% a year, which means in real terms I would loose out (don't ask me to do the maths) every year by half the rate of inflation over ten years I would not be able to afford the things I could in the past. Pan that out over 20 years I'm going to be in poverty...surely the two things can't match up.

Don't bet me wrong I'm sure the government lies to us about this but it's also in it's best inteests to keep the inflation level accurate.

So intelligent people of the NS board in my uncle right. Any people clever with maths it would be great for some calculations.

Well you wouldn't necessarily be losing out, as goods and services would likely get cheaper over time anyway due to competitive forces, but I don't know if they would decrease in real terms by 5%.

It's all about the tools your uncle uses to compare the value of money at different times, which differ depending on your economic views. I'm not too familiar with the British economy, so I couldn't go in depth on your question.

I don't think he's correct inflation of all goods put together.

Though probably based on consumer goods, he might be right, especially most recently on the surging oil prices. Certain goods (I don't know about UK) have increase tremendously.

No they don't..!!!

Economics don't help anything..!!

It's a myth,... Economics doesn't help ANYTHING..!!!


Oh....

That's not what you meant..?

Oh....


Sorry..

Never mind.


-The REAL Iakeo