Headline inflation may not tell the full story

Statistics come in different kinds and each can be used to tell its own story. Rising inflation has made such variations even more obvious. Movements in the consumer price index – the UK’s main target – aim to capture changes in monetary value. The CPI does less to highlight the specific challenges facing poorer households. But soon, access to digital data will provide an opportunity to produce statistics that paint a more complete picture of rising cost of living and directly represent more people’s experiences.

Statistical measurements of the cost of living have been put on the political agenda by anti-poverty campaigner Jack Monroe. Monroe is famous for its tight budget recipes paralyzed the media to focus solely on the average experience – to miss the pressure on the very poorest. They, she says, have experienced even tighter pressure on their purchasing power thanks to stronger price increases for the most basic and cheap foods.

Monroe has a point. It is possible to make generalized statements about the cost of living based on CPI, the overall goal, but it will tend to overrepresent the experience of richer households. Inflation is a figure for the whole economy that seems to capture the purchasing power of the pound by tracking how they are being spent over time. Wealthy households account for a disproportionate share of total UK consumption, so the headline will always have more relevance to their buying patterns.

What is clear from the CPI is that the cost of necessities is rising. An increase in the energy price ceiling in April will allow energy suppliers to start passing on sharp price increases in the wholesale markets to consumers. While this may be good for the viability of energy companies, it can be disastrous for the poorest households. Unlike many of its peers in Europe, the British government has not yet unveiled any scheme to help the poorest; an intended delay in the planned public insurance increase would do more for the richer groups.

The Office for National Statistics rushed on Friday to restart the release of experimental data – suspended early in the pandemic, as some key prices were temporarily unavailable – which showed that prices in UK stores were rising at “similar” levels for both the poorer and the richer families; the price of some more luxury categories is also rising rapidly. But even though they are weighted differently, the price points used to come up with these numbers for the same commodities used to calculate CPI – chosen to be representative of what average households buy, are not the poorest.

In 2017, however, the Digital Economy Act gave ONS permission to require access to data held by certain companies. Soon it will use this power to collect prizes directly from the box office. This will give the statistics bureau hundreds of millions of data points to track changes in food prices, including goods that tend to be bought by the poorest in society. Over time and with ingenuity, the vast amount of data available from this and other sources can make it possible to tie public payments and services to an index that better represents the lived experience of inflation.

Whether this option is realized or not will depend on whether politicians want to ease the pressure on the cost of living or save money. Unfortunately, they do not have a great record on this front. UK student loan rates, inflation-linked bonds and train prices are all linked to the discredited retail price index. One must hope that this time will be different. But while statistics can be used to tell many more stories, it is unlikely to alone prevent politicians from choosing only their favorite.

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