cpi/rpi slides

• Inflation drag and drop (warm up)

How to measure inflation

 Inflation measures how prices grow.   If inflation grows gradually, the  economy benefits. If prices slump, we call it 'deflation'. If  prices' growth spirals out of control, we call it 'Hyperinflation' (Check Inflation, Hyperinflation, Deflation and Living with Inflation in the videos section https://www.ooberkidsrepublic.com/videos)

• Inflation types

We have also learned that there are different types of inflation: consumer driven (demand pull), cost driven (cost push) or/and caused by expectation (built-in inflation)

... but how do we measure inflation?

 In the United Kingdom we started measuring prices in 1914 to make sure people could afford food and basic commodities as prices kept rising during WW1 (1914-1918)   After WW2 (1939-1945) inflation was measured using 1ST RPI – Retail Prices Index (since 1956)  THEN Harmonised Index of Consumer Prices (HICP)  (since 1996) The Bank of England Renamed HICP 'CPI' – Consumer Prices Index IN 2003 AND MADE IT ITS MAIN MEASURE OF INFLATION AND NOW CPIH – CPI Index including Housing Costs (2017)

RPI Vs CPI

                   RPI CREATED IN THE UK TO MEASURE INFLATION IN THE UK INFLATION ESTIMATES ARE USUALLY HIGHER (BY ABOUT 1%) THAN CPI

                    CPI CREATED BY THE EU TO MONITOR PRICES THROUGHOUT THE WHOLE EU INFLATION RATE LOOKS LOWER, SO THE GOVERNMENT LOOKS MORE IN CONTROL OF THE ECONOMY AND THE ECONOMY LOOKS STRONGER 

RPI Vs CPI

                 RPI INCLUDES EXPENSES MADE BY MOST HOUSEHOLDS EXCLUDES THE EXPENSES OF HIGH-INCOME HOUSEHOLDS' (THE SPENDING HABITS OF WEALTHY PEOPLE) LOW-INCOME hOUSEHOLDS (PEOPLE EARNING LOW PENSIONS WHEN THEY RETIRE FROM WORK)

                   CPI INCLUDES EXPENSES MADE BY ALL UK RESIDENTS (ANY NATIONALITY) AND VISITORS EXCLUDES THE COSTS OF KEEPING A HOUSE/PROPERTY IN GOOD CONDITIONS (REPAIRS AND MAINTENANCE) PROTECTING A HOUSE/PROPERTY (INSURANCE)  PAYING FOR A HOUSE/PROPERTY (MORTGAGE INTEREST, FEES, COUNCIL TAX AND STAMP DUTY)  

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CPIH (pros & cons)

Caption: : CPIH INCLUDES SOME HOUSEHOLD EXPENSES

                     Pros It's comprehensive. It's CPI + WHAT IT COSTS TO KEEP A HOUSE WHEN YOU LIVE IN THAT HOUSE, THE OWNER OCCUPIER HOUSING (OOH) COSTS It also includes Council Tax costs                    CONS  based on rents (so does NOT fully mirror the housing market, like the change in property prices)

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 Components and their weight in the CPIH                          (Jan 2020) Food & non-alcoholic beverages             7.9% Alcohol & tobacco                             3.1%  Clothing & footwear                           5.2%  Housing & household services                29.5% Furniture & household goods                 5.1%  Health                                          2.1%  Transport                                     12.1%  Communication                                 1.7% Recreation & culture                           13.6%  Education                                        2.4% Restaurants & hotels                            9.6%  Miscellaneous goods & services                 7.7%

so, what's included in the CPIH?

Caption: : the components include every aspect of our spending habits, not just the basics

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Caption: : The changes in the CPIH shopping basket reflect how our tastes change

IN and OUT of the CPIH basket

                  January 2020                    IN Gluten free breakfast cereal Vegetable crisps Re-usable bottle/mug, for an adult Self-tanning product                         OUT MP4 player (due to smartphones use) Bank Overdraft charges Burger in a bun, eat in & Burger in a bun, takeaway (Replaced by a new burger item covering both eat in and takeaway)