David Prosser: In the real world, inflation is soaring

Mortgage borrowers will no doubt have breathed a sigh of relief following the Bank of England's announcement this week that inflation unexpectedly fell to 2.4 per cent during July. If prices are rising more slowly than thought, there is less chance of another rise in interest rates this year to follow this month's surprise increase.

But are prices really rising so slowly? Within two days of the Bank's announcement, Powergen, one of Britain's biggest energy companies, announced its second price hike of the year - this time, bills will rise by almost 20 per cent. Meanwhile, council tax bills are also rising faster than inflation - they increased by an average of 4 per cent in April - while water rates are up by 5.5 per cent on last year.

The Bank of England calculates inflation by looking at the prices of a basket of goods. As with any statistical measure, it is an imperfect science that sometimes produces an accurate reading and at other times is wide of the mark.

But the debate about whether the official picture of inflation is accurate is not simply an academic one. For one thing, there's the obvious question of whether the Bank's Monetary Policy Committee is making the right decisions on interest rates if it is being given a misleading picture.

More worrying, in my view, is the fact that for more than 10 million people who receive state pensions, the annual increase in their income is linked to inflation. If the official rate of inflation understates the amount by which the cost of living is really rising, pensioners end up significantly worse off.

The current mismatch between inflation figures and rising prices is particularly difficult because council tax, water rates and fuel bills are all items of expenditure that pensioners cannot avoid. As all three eat up a greater chunk of pensioners' income, levels of poverty among older people are certain to rise.

In theory, there is a safety net in place to catch pensioners who fall below the poverty line. Under the Government's minimum income guarantee, pensioners whose income falls below a set weekly amount can claim extra money in the form of the pension credit. Moreover, the level of the guarantee is uprated each year in line with average earnings, rather than prices, and these tend to increase more quickly.

In practice, however, several million pensioners fail to claim the money they are owed. And in any case, increases in average earnings are still miles behind the utility bill hikes we've seen this year - the Bank put the figure at 4.3 per cent this week.

In other words, by understating inflation, not only do we risk getting fundamental decisions on economic policy wrong, we also seriously disadvantage a very sizeable chunk of the population. Given the hugely sophisticated tools available to the Bank's economists, there must be a better way to measure price rises. Alternatively, older people deserve extra help with fuel bills.

nnn If you live in Cornwall, Nationwide has some bad news. The building society says the county has more fee-charging cash machines compared with free ATMs than any other area of the country - six out of 10 Cornish holes-in-the-wall charge a fee.

But while Nationwide's campaigns are often spot on, this figure seems to me as misleading as the Bank of England's inflation numbers. The number of free ATMs in Cornwall hasn't fallen in recent times - it's just that fee-charging operators have installed machines in lots of locations that the banks don't find it economic to serve.

That sounds like good news. If you live in a more isolated part of Cornwall, you no longer have to travel so far to get cash, albeit at a price.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

On the last day of campaigning before the polling booths open, the SNP leader has written to voters in a final attempt to convince them to vote for independence
scotland decidesIs a huge gamble on oil keeping First Minister up at night?
Arts and Entertainment
Rosalind Buckland, the inspiration for Cider with Rosie died this week
booksBut what is it like to be the person who inspires a classic work of art?
Life and Style
techApple has just launched its latest mobile operating software – so what should you do first?
A male driver reverses his Vauxhall Astra from a tow truck
newsThe 'extremely dangerous' attempt to avoid being impounded has been heavily criticised
Arts and Entertainment
Lionel Messi in action for Barcelona
filmSo what makes the little man tick?
Arts and Entertainment
tvReview: An undercooked end (spoiler alert)
Arts and Entertainment
Pharrell dismissed the controversy surrounding
musicThe singer said 'the last thing I want to do is degrade'
Cesc Fabregas celebrates his first Chelsea goal
footballChelsea vs Schalke match report
Arts and Entertainment
Toby Jones (left) and Mackenzie Crook in BBC4’s new comedy The Detectorists
tvMackenzie Crook's 'Detectorists' makes the hobby look 'dysfunctional', they say
Life and Style

Olympic diver has made his modelling debut for Adidas

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Trainee Recruitment Consultant Birmingham

    £18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

    Recruitment Consultant - Soho - IT, Pharma, Public Sector

    £20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...

    Sales Executive

    £20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

    Day In a Page

    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week