The CPI vs the RPI. Which to believe?
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There are two linked but peculiarly contrary items of news this week. The Consumer Prices Index (CPI), which is the Government’s preferred measure of inflation, fell to 2.2% from 2.3% in April. However, the Retail Price Index, which is generally considered to be the more honest measure of inflation, fell to -1.1%.
Apparently, the biggest factor restricting a sharper fall in the CPI was the rise in alcohol and tobacco prices, reflecting the increase in duties introduced in the Budget in April.
Meanwhile, the dramatic fall in the cost of a typical family’s weekly essentials has been driven by sharp declines in mortgage costs since last year, while petrol and diesel are also much cheaper than a year ago.
The CPI measure of inflation has now been above economists’ expectations in five of the past seven months but it is expected to continue falling to below 1pc in the coming months.
Interestingly enough, overall household costs, which cover utilities, council tax and insurance, are 17pc lower than a year ago, while transport costs have fallen by 16pc. These falls were partly offset by a 9pc rise in food prices, adding £2.94 to the cost of a typical basket of essentials, which now costs £35.20.
These confusing figures underline one major point, which is that the UK economy is still in a dichotomy. At the moment, with all other things being equal, there is enough data to support both optimistic and pessimistic points of view. The problem of course it that life never allows everything else to be equal.
If unemployment continues to rise as is expected, the optimists may find themselves relying on pure hope rather than statistics.
