What is the UK's "REAL" Inflation Rate?

The consumer price index and the retail price index are currently around 4 and 5 per cent respectively. The goods are weighted as described in this article http://www.statistics.gov.uk/articles/nojournal/cp...

If you take issue with this then that is fine and your personal inflation rate may have changed much more! Sadly the only way to know ones personal inflation rate would be to write down everything you spent your money on for a year and then continue to do so for the rest of your life. Most of us can't be bothered so unfortunately we have to make do with an average.

From the statistics available to us it would appear that if you buy the same stuff as last year it will cost you roughly 5% more this year than last year - if you had no pay increase. This means that you will be able to buy roughly 5% less stuff than last year (100/105=0.9523).

Might I suggest a new car insurance package? I know a decent meerkat who seems to know a fair bit...

1. There is no one "real world inflation rate". Inflation is computed in terms of a basket of goods, but no two people actually have the same buying pattern.

For an extreme example, young people tend to buy more clothes and spend more money on entertainment (eating out, etc.) than the elderly, and the elderly tend to spend more on medicines than the young. If clothes prices drop and medical costs climb, what happens to the "real" inflation rate? you'll never get the two to agree.

2. Your anecdotal perceptions are essentially useless.

http://www.canadiancapitalist.com/high-inflation-p...

http://www.guardian.co.uk/business/2007/dec/14/ban...

http://detnews.com/article/20110613/BIZ01/10613030...

It is clear that people tend to notice price increases more than they notice price decreases. It is also clear that they notice price increases when they buy, which means they'll notice price increases more on goods they buy often, like food, as compared with goods they buy less often, like houses, cars, major appliances, etc. If the price of a home goes down while the price of food goes up, most will consider this inflation even though housing is a larger part of most people's budgets than food and inflation may have fallen.

3. So, all in all, I'm much more inclined to believe the "Government Induced Fantasy" than your ignorant and unsystematic perception.

http://www.tradingeconomics.com/united-kingdom/inf...