It is strongly in the interest of governments that inflation figures stay low, even if inflation itself is not low.

An hour or so researching newspaper stories on "Google" should puzzle those who have read that UK inflation is - officially - running steadily on target at about 2.5%.

"Since 1996-07, the year before Labour came to power, the average council tax bill will have risen from £525 to £1,053." - The Times - Feb 20 2006.

"The UK's biggest energy supplier will raise gas and electricity tariffs by 22% from 1 March 2006. " - www.bbc.co.uk - Feb 17 2006

"A single Tube journey in zone one will cost £3 instead of £2 while a single bus journey will rise from £1.20 to £1.50, said Mayor Ken Livingstone." - www.bbc.co.uk - Oct 2005

"Prices for houses in London were up by 7.2 percent in the three months between November and February" - www.worleconomies.co.uk -

"Tesco was the first to announce an increase in its retail milk price of 2.2 pence per litre, and now all of the major retailers have followed suit with increases of between 2 and 4 pence per litre." - www.tumpline.com - 26 January 2006

"Average [water] bills in England and Wales rose by 11.8% in 2005. This time around, the average increase is 5.5%, roughly double UK inflation." - news.bbc.co.uk - 30th March 2006

"The price of a standard UK passport is to rise by 21%" - www.bbc.co.uk - 17 November 2005

"Overall fuel costs for companies were 39 per cent higher last month than a year before, the sharpest rise since 1991, according to figures released yesterday." - The Times - 13 Sep 2005

"Other official data paint a slightly different picture of recent earnings developments. Since June 2005, the ONS has published a new experimental series: the average weekly earnings (AWE) measure [+4.3%]... the factors behind that divergence are unclear at present." - www.bankofengland.co.uk - February 2006

"In 1985 the average annual cost of sending a child to private school was £1,806 compared to £8,388 in 2005, an increase of 364%" - Independent Schools Council (ISC) - August 2005

"The latest data from the ONS says that income tax payments were 7.5 per cent higher in the year to the end of March 2006 than in the previous year. An equivalent measure of National Insurance showed a rise of 5.8 per cent over the same period." - www.telegraph.co.uk - May 2006

"Price of British beef 'to rise by 20%'. The price of British beef is set to rise after exports to Europe resume next week...Increased wholesale prices are likely to be passed on from supermarkets to shoppers, the National Beef Association (NBA) warned. Exports will resume from May 3, finally ending the ban brought in a decade ago to stem the spread of mad cow disease (BSE)." - finance.pipex.com - April 2006

"The average Old Trafford price rise will be 12.3 per cent" - Manchester Evening News -10th April 2006

"the maximum you'll be asked to contribute towards your tuition fees is £1,175 in 2005/06 ..... If you are starting a full-time undergraduate course in 2006/07 you may have to pay a contribution up to a maximum of £3000 a year" - www.aimhigher.co.uk - 2006

"Premium increases very closely follow healthcare spending increases over time. Over the most recent ten-year period (1993-2003) for which data are available, premiums grew at an annual rate of 7.3 percent, while the cost of healthcare services grew at an annual rate of 7.2 percent." - PriceWaterhouseCoopers - www.pwcglobal.com - The Factors Fuelling Rising Healthcare Costs 2006.

"Price inflation in the private sector for residential care and some other contracted services (such as repairs and maintenance of buildings) has also been much higher than the retail price index (RPI)." - Hampshire County Council - www.hants.gov.uk - February 2006

"The cost of a UK first-class stamp has risen by two pence to 32p [6.7%]" - www.bbc.co.uk - April 2006

"In the past three years, inflation has risen by 4.6 per cent while the cost of running a house increased by 14 per cent. Rises in mortgage interest payments most contributed to the cost of owning and running a house in 2004/05 rising by 20 per cent to an average of £2,146, according to the research, which is based on data from the Office for National Statistics." - www.aboutproperty.co.uk - March 2006

Inflation's moving target

The Bank of England's Monetary Policy Committee has an inflation target of 2.5%. Previously inflation was measured using the 'Retail Prices Index', which was used consistently - so long as interest rates were falling. When rates rose again they quietly switched to focusing on RPIX, which excluded interest rates, and then reverted to RPI when rates turned down. This allowed the most widely reported inflation figure to enjoy - repeatedly - a one way ratchet of cyclically falling rates.

The RPI includes neither houses nor retirement income, two of the biggest expenditures which most people have, and the cost of both of them were rising sharply through the 80s and 90s.

The CPI

Recently the Bank of England switched to the CPI, a European standard. It doesn't include houses or retirement income either. In fact it has an even more convenient mix of data, and consistently reports a lower inflation figure than RPI:

"...the RPI covers owner-occupied costs and council tax and the CPI doesn't although it does cover new cars, personal computers and air fares that the RPI doesn't" - www.pcs.org.uk

There is a pattern. The owner-occupied costs of plumbers and electricians have been increasing because of many extra costs imposed on their employers, like National Insurance Contributions and increasing Health and Safety costs. Council tax has been rising fast too.

On the other hand because of increases in competition from no-frills airlines European air fares have plummeted.

Cheating with the numbers

Personal computers and cars are interesting too. The statisticians use 'hedonic' computation, which means that product improvement impacts the reported inflation figure. So a basic computer, which doubles in capability every 18 months, is computed as a halving of price even though the price of a basic family computer does not fall at all.

In the same way a modern day BMW 7 series (£38,000) on any car criteria greatly outperforms a 1970s Rolls Royce (£50,000 then). The result is that in a statistician's spreadsheet luxury car prices fall steadily over 30 years. In fact a new Rolls Royce has risen from about £50,000 in 1970 to about £200,000, and a top of the range BMW by a similar percentage factor.

Yet more exclusions

It is getting increasingly silly. The new target is 'Core CPI', which excludes housing, its associated costs and taxes (mortgages and council tax), the capital cost of retirement income, and now fuel and food too! It seems improbable that savers will be impressed by this sort of selectivity indefinitely, unless they believe it useful to measure the purchasing power of savings only by comparison with the tumbling prices of imported Chinese clothing and electronic gadgetry.