The pound in our pocket is shrinking 8% a year

An overwhelming nine out of ten (93%) British consumers disagree with the Government’s inflation figures. Fool.co.uk’s Inflation Index reveals that consumers believe the true rate of inflation is 8.1%, and not 2.2%.

Personal inflation is four times higher than Government figures
40-year-olds feel inflation at 8.8%
Northern Ireland experiences the lowest rate of inflation
The West Midlands have the highest rate of inflation

Inflation is over 15% for one in 20 people

The latest Index shows that only one in fourteen people (7%) reckon inflation is close to the Government’s inflation rate. Over half (53%) put the increase in the cost of living between 7% and 12%. At the average rate of 8.1%, the Fool.co.uk Inflation Index is 0.8% higher than six months ago, and 0.7% higher than a year ago. One in twenty (5%) say the true rate of inflation is over 15%.

The Roaring Forties

Inflation is pronounced for consumers over the age of 34 – they say it is higher than 8%. But people between 42 and 49 years of age are some of the hardest hit. They estimate personal inflation to be 8.8%.

The Lucky Irish

People in Northern Ireland are some of the least affected by the rising cost of living. But six months ago they were some of the worst hit. They estimate inflation is 6.8% compared to 8.1% six months earlier. There was a major turnaround for residents of the West Midlands too. In June 2007 they were some of the least affected by inflation at 6.6%, but this time they assess the true rate of inflation to be 8.8%.

David Kuo, Head of Personal Finance at Fool.co.uk says; “The Government can boast as much as it wants about its success over controlling inflation. However, people feel inflation through the shrinking pound in their pockets; they don’t experience it through a theoretical Government shopping basket.

“For most consumers, the true rate of inflation is much higher, which means that their pockets are being methodically picked through meaningless Government figures. In order for consumers to reproduce the official inflation numbers, they need to replicate exactly the Government’s consumer basket item for item, whether or not they need to buy the goods.

“It means replacing your kitchen with a new one because prices have come down, changing your comfy chair for an inflation-lowering leather settee, and downloading Internet music even if you prefer listening to vinyl on your belt-driven turntable. But going to such lengths would not only be preposterous, but a dreadful waste of money too.

“Instead, consumers should revisit their budgets regularly. It may mean taking drastic action to ensure that household income comfortably exceeds expenditure. But the alternative may be much less palatable. It could mean stockpiling Brussels sprouts just because the Government says they are cheaper.”