Price inflation is measured using the price changes for a notional basket of goods and services.
The Office for National Statistics (ONS) has announced a series of changes to the items used in this inflation ‘basket’, to better reflect the type of things on which we collectively spend our money.
The inflation basket contains 650 individual goods and services, with the ONS collating 180,000 price quotations from 150 areas of the UK each month to determine the level of price inflation. This is then reported using the Retail Prices Index (RPI) or Consumer Prices Index (CPI).
Leaving the inflation basket following this review are mobile phone downloads, vending machine cigarettes, rose bushes, pork shoulder, vet fees for spaying a kitten and hardboard.
The new items added to the inflation basket are smartphone handsets and their apps, dating agency fees, hair conditioner, oven-ready joint, dried fruit, sparkling wine, medium-density fibreboard (MDF) and craft kits.
The inflation basket is created by using a £400m a year threshold on expenditure for an item. Goods or services where we spend at least this amount each year are typically included within the basket, unless they are adequately represented by other goods or services in the basket.
Where the amount spent on an item falls below £100m a year, the ONS has to have a good reason for continuing to include it within the inflation basket.
It is useful to understand how the ONS arrives at inflation figures because they are average figures.
The level of price inflation we each experience as individuals will differ depending on how we choose to spend our money. For this reason, older people typically experience higher price inflation due to the nature of their expenditure on goods and services which tend to escalate in price more rapidly.
Photo credit: Flickr/Sir Mildred Pierce
