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Anorak | Wages, inflation a Guardian reader’s cup of coffee: a journalist’s confusion

Wages, inflation a Guardian reader’s cup of coffee: a journalist’s confusion

by | 10th, December 2016

Journalists are notoriously bad at numbers. Writing in the Guardian, Patrick Collinson is talking about how things were better years ago.

The Bank of England governor told us this week there has been a “lost decade” of wage growth. But is the truth really a lot worse than that?

It turns out that the question is rhetorical. Collinson knows. He’s looked at his dad’s old tax returns:

In 1963-64 his pay as an accounts clerk in London was £1,357 a year. In today’s money that equals a little over £25,000 a year once inflation is taken into account.

Is it? Inflation is the percentage change in the value of the Wholesale Price Index (WPI) on a year-on year basis. The Office for National Statistics tells us: “The Wholesale Price Index (WPI) is the price of a representative basket of wholesale goods.”

Changes in the prices of goods bought and sold by UK manufacturers including price indices of materials and fuels purchased (input prices) and factory gate prices (output prices).

And there’s the Retail Price Index, a comprehensive measure covering goods and services bought by most households. And there’s the Consumer Price Index, of which the FT says:

On a particular day every month, thousands of ONS inspectors collect 110,000 prices for more than 650 goods and services in 150 places and over the internet. This basket of goods and services is based on a survey of the spending patterns of 6,000 households and is continually updated.

Since there is no such thing as a typical household – not everyone smokes, drinks, eats out, buys rail tickets or pays school fees or a mortgage – the inflation rate of each household will differ from the average.

People who spend a lot of their money on services – childcare, hairdresser visits and restaurants, for example – will have faced a higher inflation rate in recent years given the much larger rise in services inflation than goods inflation.

Inflation is measured by comparing the price of the same or comparable things over time.

Collinson continues:

In some ways that £25,000 doesn’t look so great. After all, someone working in a similar role with his level of experience at the time might expect £35,000-£40,000 today. But then look at what an income of £25,000 bought in 1963 in London.

And look at what it buys you now. Yeah, it buys you the same stuff. Collinson has compared wages by looking at inflation.

His granddaughter now works in the same city, London, for the same pay, £25,000. But what does an income of £25,000 buy you in 2016?

As Tim Worstall notes: “Well, actually, it buys you a basket of goods worth exactly the same as £1,357 bought you in 1963. Because that’s how we work out what the inflation rate is.”

Quite.

PS: The Guardian is appealing for cash. It wants readers to pay £5 a month to read the paper online. And in the Guardian’s world the desired £5 donation is “the price for a cup of coffee”. The headline of Collinson’s story: “Oh for the 1960s! People earned less but could afford more.”

Life was frothier than your expensive coffee back then.

 



Posted: 10th, December 2016 | In: Money, News Comment (1) | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink