More Inflation Pain RPI Record 11.8% pa and CPI 9.4% pa

Published / Last Updated on 20/07/2022

The Office for National Statistics (ONS) has today published yet another 40-year record inflation figure for June 2022 in the UK.

UK Consumer Prices Index (CPI) increased significantly by 0.3% to 9.4% pa in June 2022 compared to just a 0.1% increase in May (9.1% in May, 9.0% in April, 7.0% in March, 6.2%pa in February, 5.5%pa in January, 5.4%pa in December).

The ONS put the continued inflationary rises down to increased costs for:

  • Transport and energy, as Russian gas cut threats remain
  • Food and non-alcoholic beverages
  • Housing and housing services
  • Restaurants and hotels

That said, there have been some signs of hope with prices falling for:

  • Clothing and footwear
  • Recreation and culture
  • Alcohol and tobacco

What about the old inflation measure of the Retail Prices Index (RPI)?

The old measure of inflation RPI, an arithmetical mean of the average prices of a basket of household spending, went double digit again, as predicted, to yet another painful 40 year high of 11.7% pa (up from 11/7% pa in May, 11.10% pa in April, March 9.0% pa, 8.2% pa in February, 7.8% pa in January, 7.5% pa in December).  That’s means RPI inflation i.e., real spending costs (not weighted costs) have nearly doubled in 7 months.

We repeat our message on inflation in that we still believe that RPI is a more accurate measure as it is the costs of a standard amount of a set of goods and services divided by the number of goods and services called an arithmetical mean whereas the newer measure of inflation, CPI is a geometrical mean i.e., prices multiplied together and then the nth root of the same number of goods and services.

Bold Interest Rate Action Still Not Delivered

The next Bank of England interest rate review is on 4th August 2022, and we hope for significant action to strengthen the £ and curb inflation given the paltry increase in June of just 0.25% in June to 1.25% pa.  We suggested in our interest rate review last month that they had ‘bottled’ it, whereas the Federal Reserve acted more strongly with a 0.75% increase and will likely push it higher at its next review on 27th July 2022.

We Repeat:  ‘Smoke and Mirrors’? Governments Needs Inflation

Governments around the world need inflation to devalue public sector debt.  Just the UK government alone borrowed £500 billion to pay for covid-19.   Most of this debt borrowing was via fixed rate gilts (government bonds).  Think of them like an interest only fixed rate mortgage.  You pay interest every month or year and then at the end of the term, you pay the debt back in full.  £500 billion of debt on an interest only fixed rate means that if we had inflation at just 5%pa over a 10-year period, that £500 billion debt would be reduced in real terms value by 63% i.e., in today’s ‘real terms value’, debt to be repaid in 10 years would be the equivalent today of £185bn.

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