Those broadsheets that wanted to “remain” are looking for every scrap of bad news following the Brexit vote. For many stories it seems fair enough, newspapers always have their own take on events. Surely though, it’s a step too far when the reporting of official statistics “facts” falls below a certain threshold of quality, deliberately. Such was some of the reporting of Tuesday’s inflation figures. More reporting of events (and less speculation), a bit of perspective (not focusing on the latest month’s figures) and looking at the detail of the release would be good.
The London Evening Standard proclaimed “UK inflation soars to two-year high” as Tuesday’s headline.
It had me worried and I knew it was deeply misleading! The story had all the negative narrative (“the big jump in the inflation rate was an ominous sign of things to come”) we are now familiar with.
The FT followed suit. Its coverage started with the innocent: “As so often in the Brexit debate, there were sharp disagreements on Tuesday over the reasons for inflation rising to 1 per cent in September from 0.6 per cent in August.” But he story was around 20 paragraphs of the usual doom monger semi-reporting. It went a bit further though, saying that “Many economists disagreed” with the ONS comment that there was no real evidence of a Brexit impact yet, which seemed a bit like a challenge to their authority. The longer version of that official quote from the ONS’s head of inflation was: “CPI inflation …. remains low by historic standards. The prices paid by manufacturers for raw materials were unchanged over the month and there is no explicit evidence the lower pound is pushing up the prices of everyday consumer goods.” That was clearly not convincing for the FT and their economist contacts.
Of course everyone forecasts that inflation will rise but should we be jumping the gun and ladling on the pessimism before time? Do we really want every release of data to prompt a journalistic run round the city and academic doomsayers to see who can have the gloomiest line of the day? Or would accurate reporting of the news be better?
And so to perspective. How high is inflation? The ONS chart below covering nearly three decades shows that it is very low by historical standards. In the 27 years since the CPI was first published there have been only two years where the annual average was below 1% – last year and 2000. The developed world has had broadly low and stable inflation for a couple of decades. Of course stuff happens to cause dips like last year or the spikes seen in 2008 and 2011. But, from the starting point of below 1% there was really one way inflation can go and the devaluation will push it up. But does the latest figure against this recent history merit the headlines?
Another view on perspective can be seen in the inflation target that the government sets for the Bank of England. It’s currently 2 per cent. As explained by the Bank: “Inflation below the target of 2% is judged to be just as bad as inflation above the target. The inflation target is therefore symmetrical. If the target is missed by more than 1 percentage point on either side – i.e. if the annual rate of CPI inflation is more than 3% or less than 1% – the Governor of the Bank must write an open letter to the Chancellor explaining the reasons why inflation has increased or fallen to such an extent and what the Bank proposes to do to ensure inflation comes back to the target.” Did I read “ensure”? As this Guardian report indicates, the Bank has a tricky balancing act coming up. As Paul Ormerod explained the Bank has only limited impact on inflation in any case.
So, another way of looking at the latest figure is that, after seven successive quarters, the Bank might not have to write another letter of apology this quarter to the Treasury (and the nation) for delivering a “bad” rate of inflation. A rate of inflation of 3% – three times the current rate – is preferable to what’s happened in the last year. There was not too much of that in the press yesterday.
Thirdly, analysts and reporters might like to look at the detail of the releases that the ONS give us. If the rise in inflation was due to brexit then the latest month’s figures (the month on month change as opposed to the annual rate change in the latest month) would be rising. That is not really happening – not at the CPI aggregate level. The second column of figures in the table below shows the annual rate of CPI – with the latest figure being 1%, the highest, as reported, since November 2014. Yet the index (in column 3) or the actual change in it (column 5) do not show a pick up since devaluation. The 0.5 rise in the index in the last three months compares to 0.4 in the previous three months. That’s of no statistical significance. The larger than normal jump in the annual rate in September reflects the erratic nature of the monthly changes a year ago.
While some papers did not do a great job with this month’s inflation reporting, some other outlets did. Sky’s Ed Conway was excellent with his “Don’t blame Brexit for inflation rise… yet“. The Daily Mail was also solid with “Inflation at near two-year high amid rise in clothing prices” and its lead on the ONS explanations.