Inflation - Saint or Sinner?

According to Benjamin Disraeli "There are three kinds of lies: lies, damned lies, and statistics" and there can no truer illustration of this concept than the recent announcement of zero inflation.

While politicians bask in their self-satisfaction for creating this apparent period of economic Nirvana it's worthwhile noting that, while the price of the hypothetical basket of goods and services selected by the Office of National Statistics (ONS) may well have remained static, the average man or woman in the street isn't necessarily feeling the benefit.

The ONS's basket is constantly changing to try to reflect the spending habits of the UK consumer but it is, and always has been, an artificial construct. While the removal of yogurt drinks and satnavs in favour of liver and headphones may have some deep arcane significance for the ONS it's debatable how much relevance the change has for the average consumer. The replacement of white emulsion by (yes, you've guessed it) non-white emulsion seems to be even more left field.

The truth is that the current lull in inflation has very little to do with the cost of comestibles (or, for that matter, the efforts of MPs) and everything to do in the slump in oil prices and their knock on effect to petrol, gas and electricity prices.

Despite that price drop the fact is that gas and electricity prices have risen by 37% since 2011, something which is likely to be a much more meaningful statistic for the average consumer than any variation in the price of liver.

And even if it existed in reality, is zero inflation a good thing? It means, amongst other things, no pressure whatsoever on the Bank of England to raise interest rates and hence no relief for the risk averse savers who have suffered miniscule savings rates for over 5 years.

Rather than being a problem, controlled inflation is a good thing. While no one wants to see a return to the rampant rates of the late 70s let's not fall into the trap of believing the political spin that a situation created by events over which politicians have had no real control is necessarily healthy for the economy if it continues.

Robin Sainty APFS M.A. (Cantab)