Sunday 18 March 2018

Charlie Weston: Consumers short-changed by official figures that don't reveal true costs are rocketing

Diagram of golden coins isolated on white.
Diagram of golden coins isolated on white.
Charlie Weston

Charlie Weston

There is no inflation, we are told. Instead, prices are falling, raising fears of deflation - and deflation can be dangerous as it means people stop spending on the basis that prices will be lower next month. If that mindset locks into the system then people stop spending.

The Central Statistics Office consumer price index shows that prices in general fell by 0.4pc in the June compared with the same month a year earlier.

However, the overall picture on prices masks significant increases in various goods and services.

Grocery prices have been falling. But the costs of rents, meals out, beer, education, postal services, doctors' fees, dental services, cigarettes, home insurance and health insurance were all up, according to the CSO.

The cost of motor insurance has come down, but given the rises of up to 70pc in the past, some falls in the cost of cover is more than warranted.

And then there is the suspicion that the official measures of inflation are not taking account of all that is going on.

The fear is that hidden inflation is working away in the background. This includes shrinkflation, where the prices of goods stay the same, but the consumer products shrink in size. This has seen more than 2,500 consumer products shrink in size over the past five years despite being sold for the same price, data from the UK equivalent of the CSO shows. Most of the items getting smaller were food products. Most are sold here.

The CSO inflation figures do not capture house prices, which are rising at a rate of almost 12pc annually.

Legal service costs are not captured by the price index, but rose by 10.4pc in the third quarter of last year compared with the same quarter in 2013, according to the Competitiveness Council. Legal costs impact on motor insurance and the costs of running businesses. All this ends up being passed on to consumers. There is no sign of that new Legal Costs Adjudicator who was supposed to reduce this burden on us all. More price hikes are on the way. The public services obligation levy on electricity bills will make them more expensive from October, taxi fares are set to go up, and bin collection charges will rise for 700,000 households that currently do not pay by weight.

The Brexit-induced fall in the value of sterling is making the price index look benign, but even that is a problem.

Sterling has fallen by more than 6pc in the last year. We import much from the UK, but food prices have not fallen that much.

The bottom line is that consumers are being short-changed, as prices are rising for many goods and services.

Sunday Indo Business

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