Misc Tristan on 04 Jun 2008 12:15 pm
The Real Impact Of Inflation
I take a keen interest in the Bank of England base rate, and the information that is used by the Bank to make their monthly decisions on what level to set the Bank of England Base Rate (BOEBR). This is because firstly, my mortgage is a tracker mortgage, but secondly, as a mortgage advisor, I’m always keen to know what trend the rates are going in so that I can give advice to my clients about what sort of product is right for them in the current and future financial climate.
According to the BOE website and their most recent inflation report for May 2008, they state that the rate of inflation for March 2008 is 2.5%, which is 0.75% higher than six months ago.
I tend to think that the real inflation level is much higher. This is because the figures used by the BOE are largely manipulated by what they use to assess the cost of living. For instance, the figures take into account the costs of white goods, TV’s, stereo’s, and many other goods that a typical person would probably only purchase every few years.
What about the things that people pay for every month, like petrol, gas, electricity, water, food. The cost of all of these has been steadily (in some cases quickly) rising over the past few months.
I’ve been having a look at the reason why the price of these everyday purchases has been rising, by looking at the wholesale prices of commodities on the Financial Times website. It makes for interesting reading.
On the 4/6/2008, the annual price rise for Brent Crude Oil, which directly affects the price of our petrol, had risen by 75.12%. Has the price of petrol risen by 75% this year though? Nope, according to various newspapers articles that I’ve read recently, the rate of inflation on petrol has been around 20% this year. Why is there such a difference? I suspect that some of the price rises have been swallowed by the petrol companies, or possibly the inflation figures are slightly out.
What about other products that we buy on regular basis? Bread for instance. The price of wheat has increased 42.14% in 2008. No surprise that a loaf of bread now costs over a £1 in most stores.
So how does that impact your weekly shopping budget? In my house, we get through on average, one loaf of bread each week. So if I am now paying roughly £1.20 for a loaf of bread, which would have cost roughly 85p at the start of the year, each month I’m speding an extra £1.40 a month just on bread!
More importantly, it is the impact that the price of wheat and corn has on other food products that we buy, as they are fed on foodstuffs derived from corn or wheat.
The only commodity that has decreased in value this year is orange juice. Scant conciliation, if you can now no longer afford to buy juice because the price of everything else has risen…
