Since 1992, inflation in the United Kingdom has not been so hot. Back then, in the era of grunge bands and video rentals, average prices were about half as high as they are now. But behind this average there is a lot of complexity. The relative price and importance of different types of goods and services have changed significantly over the last 30 years.
As the chart shows, education prices – including fees for private schools, university tuition and evening classes – have risen particularly rapidly. Strong demand and limited places in some of Britain’s private schools are one of the reasons for the almost 600% increase in prices in the sector. But some experts see education as a “web service” in which demand increases as prices rise.
Conversely, prices for electronic equipment such as televisions and personal computers have fallen. Prices for the latter, calculated on the basis of processing power, fell by 98 percent in the consumer price index (CPI). Clothing costs have also fallen, reflecting the end of import quotas and the emergence of the fast fashion industry.
There were also big changes in spending habits. Food fell from 15% in 1992 to 10% last year. Leisure and cultural goods and services currently have the greatest impact on price levels in the United Kingdom. They accounted for 15 percent of the burden last year, up from a tenth in 1992.
The pandemic has made major changes in cost models. In 2020, the National Statistics Office will adjust the weights in the CPI to take this into account. Contributions from transport, holidays and meals outside were sharply reduced. When the economy reopens, the cost of these elements will return. But their impact on headline inflation will be dampened until the basket weights are reset again. Formal calculations, however careful, are an inaccurate guide to people’s real experiences.
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