7IM’s Kumar shares insight on what’s in and out of the inflation basket – a ‘flawed tool’ in his view 

by | Mar 22, 2023

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inflation

Written by Ben Kumar, Head of Equity Strategy at 7IM

There’s a lot going on in the financial world this week, but as there’s plenty of banking system-related coverage out there, we thought we’d keep this a little bit lighter (as usual).

In the headline overload of last week, it’s highly likely that you missed the UK’s annual update to the inflation basket: https://www.ons.gov.uk/economy/inflationandpriceindices/articles/ukconsumerpriceinflationbasketofgoodsandservices/2023

And these changes help to highlight something that people often forget – the collection of goods that makes up the CPIH basket is a flawed tool for measuring someone’s personal inflation rate. 

 
 

That’s because the items within it aren’t representative of anyone’s day to day lives. And although the ONS try to keep it up to date, the changes only serve to highlight how strange a basket of goods it really is!

Look at what’s been added and removed over the last few years for example. Caveat: we’ve picked the most interesting changes (ones that happened for spending habit reasons, rather than simply ONS statistical methodology ones). 

What’s been added?

 
 

Since 2018, there’s been a real increase in the amount of technology we surround ourselves with (just think how many different chargers you own!). And it’s been reflected in the basket. Go-Pro action cameras, smart speakers like Alexa or Google Home, and this year the Ring-style doorbells/cameras.

Source: 7IM/ONS

You can see the impact of lockdowns quite clearly from 2021 (these updates happen in March, so the 2020 update didn’t capture COVID’s impact). 

 
 

There’s the health side – hand gel and anti bacterial wipes – and there’s the boredom aspect covered too – hand weights, craft kits and pet collars for all the new dogs and cats!

Finally, there’s the sustainability trend. Re-usable bottles and mugs, electric cars – and this year, E-bikes. 

What’s been removed?

 
 

Looking at what’s been removed from the basket, there are definitely a few “how is that still IN there?!”moments. Things take a lot longer to vanish from the basket than you’d expect:

Source: 7IM/ONS

Blu-ray, DVD and MP4 players lasting until 2020 seems a little generous, as does physical reference books taking until last year to vanish.

 
 

And surely digital camcorders died a death long before 2018?! The iPhone was on its TENTH version by then!

So, whilst we can probably agree that this emphasises just how non-representative the basket is for any given person*, what it does offer is a great way to track changes in society – shown by quite literally, where we’re putting our money!

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