PRICES RISING FASTER THAN EXPECTED

PRICES RISING FASTER THAN EXPECTED


Prices in the UK are now rising at a rate of over 3% p.a. in the wake of economic fallout following the EU referendum, according to figures reported by Sky News.

The sharp increase suggests that real incomes are falling for the first time in three years the clearest sign yet that households are beginning to suffer as a result of the Brexit vote.

The consumer price index stood at 1.8% in January, far below the 2.7% annual rate at which wages are rising.

However, economists have raised caution because many of the CPI data points are gathered manually. Because of this, the index is sometimes slow to reflect sharp changes in prices.

A well-respected measure of UK prices shows that online prices have been rising much faster since the vote to leave.

Chancellor Philip Hammond will present his first full Budget to the House on Wednesday, but no one is expecting any major announcements.

The PriceStats inflation measure, which is published by State Street, shows that even though prices were only rising at a rate of less than 1% p.a. before the referendum, they have risen to 3.3% in the last few weeks.

Statistics suggest that real wages, pay growth adjusted, may now be falling at an annual rate of 0.6%.

This compares very unfavourably with the positive 0.9% growth rate implied by the official inflation data.

The PriceStats figure is used as a more uptodate guide as to how the country’s economy is performing.

The official inflation measure is only published monthly, so the figures do not project an accurate interpretation of what is happening at the present moment. The PriceStats measure is used in many countries as an alternative to formal inflation, which is produced on a daily basis.

Alberto Cavallo and Roberto Rigobon point out that while official US CPI statistics took quite some time to respond to the collapse of Lehman Brothers and the financial crash of 2008, PriceStats responded the following day.

In the Budget this Wednesday, the Office for Budget Responsibility is expected to confirm that inflation will rise above the 2% target set by government in the coming year, as the higher prices of imported goods begin to have an effect on Britain’s shopping baskets.

PriceStats data suggest that those price hikes are feeding through far faster than economists or even the Treasury had expected.

The data, obtained by trawling through thousands of prices on the internet, does not, however, reflect prices in high street shops, but only on goods prices and not services. However, economists see it as a useful tool and a reliable indicator of the official inflation measure.

According to the ONS’s own figures, services inflation is running at 2.6% higher than goods inflation.


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