New measures for inflation...

In Article 16 (page 111) I set out to show how inflation is measured in the UK. When you read the analysis of this article you will see that there are three different measures of inflation published by the office for national statistics (ONS). The main measure of inflation is the consumer price index (CPI) which the Bank of England is supposed to keep at annual rate of 2%. This measure is regarded by many commentators as being a far from perfect figure as it excludes the housing costs which have been such a very important economic variable in recent times. On the 15th March the ONS updated the basket of goods and services that are included in the calculation of the CPI. In came hair straighteners, lip gloss and still mineral water and out went toilet soap, baby food and pitta bread. Based on this information I am even more convinced that the ONS bases the annual re-weighting exercise solely on my own household spending. With a wife and two University-age daughters I can count three hair straighteners currently around the place while it is a long time ago that baby food featured in our shopping baskets! If you want to find out more information about the re-weighting go the following website www.statistics.co.uk. Have fun!

UK Trade figures...

If the Government were hoping for some good news to help their election chances yesterday was another severe setback for them. The latest UK balance of payments data (see Article 21, page 153 of Reading and understanding Economics for more info) was truly shocking. The figures showed that exports fell by 7% in January. This was much worse than analysts had expected. The result was a further sharp fall in sterling on the FX markets with the pound slipping back below $1.50.

The really disturbing aspect of these numbers is that you might expect to see the sustained fall in the pound boosting UK exports and inhibiting the level of imports coming into the economy. The depreciation in the currency pushes up the cost of imports and makes UK exports cheaper on World markets. While the higher price of imports does seem to be increasing domestic inflation the more favourable rise in exports does not seem to be coming through. There had been a hope that the improved competitiveness of the UK's manufacturing sector would help to rebalance the economy with exports and investment compensating for weaker consumption and government spending. Sadly the latest data suggests that this is not happening. The next concern for the Government will be the latest GDP data released on the 23 April 2010. This might show that the UK is back in recession which will hardly be good news just a month or so ahead of the election.