Inflation is 10% for low paid

Submitted by AWL on 16 May, 2008 - 1:00 Author: Tom Unterrainer

The “official” rate of inflation currently stands at 3% (for April 2008). The government uses a method to calculate it, called the Consumer Price Index (CPI) which measures the rise in prices for a specific set of consumer items, weights them by the proportion of money that is spent on each group (say 20% on fuel, 30% on food etc...) and averages it out across income brackets. That the CPI does not take mortgage repayments into account suggests it is a less than reliable measure. But worse, the CPI positively distorts the real cost of living increases for low-paid workers.

Surprisingly, the Daily Mail has provided some very useful information for those wanting an idea of real cost of living. In conjunction with online price comparison sources (‘USwitch’ and ‘mySupermarket’) the Mail has published figures that show an increase of 15.5% for an average shopping basket, around 30% for transport (an average of unleaded and diesel and the increases in car insurance and rail tickets) and large increases for gas and electricity.

These percentages are the raw, unweighted figures. The Office for National Statistics website is a vast repository of facts and figures related to prices and interest. In the document Family Spending: 2007 the ONS provides information on the proportion of money spent on different consumables by ten distinct income groups. This information can be used to calculate a proportional measure of real cost of living increases.

For example, an individual in the lowest income bracket (the ‘Lowest ten per cent’ or ‘First decile group’) earns a maximum of £183 per week. Of this £183 about 19% is spent on food and 13% on transport. If you just take the Mail’s figures for food and transport increases, and the ONS data on the proportions spent on these groups, then a proportional cost of living increase for the poorest workers is 7%!

The Retail Price Index (RPI) currently stands at 3.8%. This broader measure of inflation includes housing costs and other items not measured by CPI. Of this 3.8% around a quarter is calculated on food and transport, so if we remove this amount, all other items have increased in cost by 2.8%. Add this to the 7% already calculated and we can estimate that cost of living has increased by 9.8% for the lowest paid workers. The real figure is likely to be higher as the 2.8% is an average figure for those earning between £183 a week and those who earn tens if not hundreds of thousands of pounds per year.

So a worker in the lowest pay bracket on £9000 per year, for example, will have the real value of their income slashed by at least £600 per year — that’s if they are lucky enough to get a pay rise at all.

If a lone revolutionary socialist with a spreadsheet and access to the internet can figure out that the 3% CPI rate is completely unrepresentative of real cost of living increases, then the thousands of statisticians and economists employed by government must know the same thing. If the number crunchers know, then Gordon Brown certainly knows — it’s just that he doesn’t care.

He doesn’t care about the hundreds of thousands of low paid workers who will have their earning slashed by his imposition of 2% rises in the public sector. He doesn’t care about those working in the private sector with no union representation and no chance of a fair deal on pay.

We need a trade union movement that takes these issues up in a serious way, develops a serious strategy to overturn governments attacks and seeks a may forward for genuine working class representation in politics.

• We will be following the real cost of living in each issue of Solidarity.

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