Out goes the outdoor adventure boot and in comes the walking/hiking boot; candy coated chocolate is dropped to be replaced by branded chocolate sweets and cable TV subscriptions are withdrawn at its place taken by bundled communication services.

These changes are all part of updating the items, the ‘basket of goods’ that the Office for National Statistics (ONS) measure inflation with in order to keep the list relevant. This occurs annually so as to keep the basket of goods evolving as consumer spending changes.

There are two basic baskets of goods, one for the Consumer Prices Index (the government’s preferred measure of inflation as it is what most of the rest of the world uses) and one for the Retail Prices Index.

There are several reasons why the baskets change.

It may be that over time fashions change so spending on one item increases as spending on another falls. So, as people now buy more of walking boots and fewer adventure boots then the basket changes to reflect it.

Another reason is where technology improves so new items come on the market and attract a substantial amount of our cash. From 2012 for example iPads are now in the list.

There are also examples of items where data is hard to collect, so another similar item is chosen. The ONS says that is why for example candy coated chocolate has been replaced with branded chocolate sweets.

Other items are introduced so as to diversify the range of products used to collect inflation data. This then reflects more accurately our spend within that sector. The inclusion of cans of stout into the beer range is an example of that as is the inclusion of hot oat cereals into the bread and cereals class of goods.

Some are removed as the class is over-represented, such as in the case of the glass ovenwear casserole dish, which has been taken out as has the stepladder as it is a ‘relatively low weighted item in an over covered area of the basket’.

Changes are also made to the way that prices are measured. For 2012 for example instead of using list prices to measure CPI inflation for car prices and used car prices for the RPI measure, the ONS will now use car dealer website transaction prices.

But it is impossible for the ONS to collect data on everything that is sold so it is important to keep the size of the basket manageable and to keep data-collection cost effective.

Shopping Trolleys by Kallerna

Shopping Trolleys by Kallerna

But whatever they change the perception always seems to be that it never reflects what ‘we’ as individuals pay. So it is worth bearing in mind that the basket covers everything from items you buy rarely, such as cars, to the food and drink you need to buy to survive on a daily basis. And if day to day costs rise even a little you notice them, whereas if the price of cars plummets to compensate and keep the overall inflation measure low then it will only really be noticed within the trade.

Maybe what we need is two sub-baskets of goods and services. One for day to day goods (food, energy, fuel etc) and one for the more rarely bought items (TVs and cars etc). That would probably give us a better and more informed view of where inflation was really taking place.

Image by kallerna (Own work) [CC-BY-SA-3.0 (www.creativecommons.org/licenses/by-sa/3.0) or GFDL (www.gnu.org/copyleft/fdl.html)], via Wikimedia Commons

Comment Here!