Realist, not conformist analysis of the latest financial, business and political news

The Mail Gets Confused About Inflation Rates – Quelle Surprise

Our newspapers are written by those who failed maths GCSE and thus had to make do with pursing an arts degree instead. Given this it’s really no surprise at all to find that there’s often a certain confusion when anything numerical – or even detailed – comes up in the news. So it is with this from The Mail:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] Rail fares across the UK have risen by 37 per cent in ten years, both outstripping the Consumer Price Index by 9 percent and the increase in wages over the same time period. The Rail Delivery Group revealed the annual percentage increase in rail fares from 2010 to 2019, which shows the prices of the vast majority of fares having risen at the beginning of each year. The price hike is currently capped at the Retail Price Index as it stood in the previous July. While the average annual rail fare has increase has been 3.2 per cent, the effect of compounding means that the overall rise since 2010 is 37 per cent.   [/perfectpullquote]

Everything that’s said there is true and yet the whole is entirely misleading.

There is no such thing as “the” inflation rate of course. The prices of things change, most assuredly, and the average change in prices will depend upon which changed prices you measure and average in order to reach your more general number. The major difference between the consumer and retail price indices is whether we include housing costs or not. Views can differ but housing is a pretty important part of the costs of life so perhaps we should be including it.

So, using the RPI, train ticket prices are exactly what they were that decade ago. Because that’s what we’ve allowed them to rise by, that RPI, one of our measures of inflation.

We’re being told, or at least allowed to assume, that this is outrageous. That this should not be. And yet something costing what it did, after inflation, a decade ago isn’t all that bad an outcome.

As to compared to real wages, well, yes. We’ve just been through a truly nasty recession, One that started – ooh, you don’t say – a decade ago. What is it that happens in recessions? Real wages, wages after inflation is accounted for, fall. That’s actually a useful if incorrect definition of a recession, when we all become less rich. So, what has happened this past decade? Real wages, calculated after inflation, have fallen. Thus the prices of things which have remained entirely the same, after inflation, have risen relative to wages. That’s just what our all getting poorer in a recession means.

Of course, rail ticket prices are still too low, as the passengers are only paying the running costs, we taxpayers having to kick in with the capital costs of the system. Yup, our taxes pay for the train sets they ride upon, their tickets only paying for the running costs. That is too low – why should we be paying for someone elses’ travel?

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5 years ago

The railways are a burden to the taxpayer because of over-regulation. The government decides that Network Rail should be responsible for the safety of people who have broken into their property with the intension of stealing stuff and that train companies should be responsible for people who wander onto the tracks without looking where they’re going. And suicides. Any new station or station refurb has to have disabled access. Q: Should rail users be paying for the implementation of government policy which applies to the railways but not to other modes of transport? The best solution would be to get… Read more »

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