Not since 1992 has British inflation been so hot. At the time, in the era of grunge groups and video rentals, average prices were about half as high as they are now. But there is a lot of complexity behind that average. The relative cost and importance of different types of goods and services have changed significantly over the last 30 years.
As the graph shows, prices for education – including fees for private schools, university tuition and evening classes – have risen particularly rapidly. Strong demand and limited places at some of Britain’s private schools are one reason for a nearly 600 per cent rise in prices for the sector. But some experts view education as a kind of “veblen service”, Where demand increases as the price rises.
Conversely, prices for electronic equipment such as televisions and personal computers fell. Prices for the latter, calculated on a processing power basis, fell by 98 percent in the consumer price index (CPI). Clothing costs have also fallen, reflecting the end of import quotas and the rise of the fast fashion industry.
There have also been major changes in spending habits. Foods dropped from a weight of 15 percent in 1992 to 10 percent last year. Recreational and cultural goods and services now have the biggest impact on the level of UK prices. It accounted for a weight of 15 percent last year compared to a tenth in 1992.
The pandemic has brought major changes to spending patterns. In 2020, the Office of National Statistics adjusted the weights in the CPI to take this into account. Contributions from transportation, holidays and dining out have all been sharply reduced. As the economy reopens, spending on those items will return. But their impact on headline inflation will be dampened until the basket weights are reset. Official calculations, however careful, are an inaccurate guide to individuals’ actual experience.
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