cpi/rpi slides

How to measure inflation

• Inflation drag and drop (warm up)
• 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)

Slide 2

• 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)

CPIH (pros & cons)

• 
• Legenda: 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)

so, what's included in the CPIH?

• 
• 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%
• Legenda: the components include every aspect of our spending habits, not just the basics

IN and OUT of the CPIH basket

• 
• Legenda: The changes in the CPIH shopping basket reflect how our tastes change
• 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)