Debate Magazine

RPI/CPI. Just What Do They Measure?

Posted on the 28 September 2022 by Markwadsworth @Mark_Wadsworth

These indices affect me on a day to day basis as we struggle to preserve our investors wealth.  But what actually do they measure?  

Well, it's not 'inflation'.  Inflation (sort of pre Keynes) was a word for the arbitrary expansion of money and credit hence an unwarranted increase in the money supply which in turn lead to higher ticket prices in that particular money of the prices of goods and services.

What other things increase prices - permanently.

How about government mandated 'useless ingredients'?  Things like car speed limiters and ABS systems.  These add costs to cars for things that you may not choose yourself.  The reduction in sizes of the Yorkie bar for the same price as government intervenes on sugar content. etc.

And on that subject what about taxes?  VAT increases prices.  PAYE is a de facto payroll tax increasing the costs of employing someone.  

Or subsidy policy.  Housing Benefit passes straight through the tenants hands into the hands of landlords at least helping to maintain rents and in some locations increasing rents.

Or foreign policy and the actions of others. Clearly the Putin /Ukraine thing is a government failure (from the perspective of everyone except Putin / Ukraine). War is diplomatic failure.  This contretemps has led to a spike in oil and gas prices which will self-correct as substitutes are found or consumers alter their behavior to consume less.

Hence we do not seem to have a single word that covers all these factors that increase prices. Inflation is not that word. 

As regards market driven price increases these are mostly transient or seasonal.  Competition keeps prices low - witness supermarkets advertising specifically comparing prices. Markets generally, and Adam Smith style capitalism is all about doing more for less every day. The constant search for greater efficiency 

Perhaps then the RPI/CPI are more accurately thought of as indexes of government and bureaucratic failure?  

Back to Featured Articles on Logo Paperblog