How Political Hacks Misuse ONS Inflation and Employment Data

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By Shane Croucher | November 16, 2012 1:44 AM EST

Data from the ONS website on inflation and the labour market is constantly misrepresented (Reuters)

Blunt headline numbers are used by political hacks across the media sphere as cheap weapons to bash their opponents' heads in, despite nuances in the numbers and the complex statistical structures that are so often belied by the trumpeted top line.

Every time there is a major piece of data released by the Office for National Statistics (ONS), the same antagonists play out their drama in the media theatre, staging mock duels on the news channels and Twitter by making po-faced, sweeping statements about the state of play in the UK economy.

The Consumer Price Indices (CPI) measure of inflation is used monthly as a way of comprehending how the cost of living has shifted in the country for the average Briton, despite the ONS saying this is what it does not do.

CPI is calculated from a "basket" of goods and services commonly bought by British consumers. Different products have different weightings in the formula for calculating CPI. The weightings are formed from spending data collected elsewhere by the ONS.

"The CPI is not strictly a 'cost of living' index, a concept that means different things to different people," says the ONS guide on the inflation measure.

"To many it would suggest the changing costs of basic essentials, but in practice it would be very difficult to agree on a definition of 'essentials'.

"The index simply indicates what we would need to spend in order to purchase the same things we bought in an earlier period, irrespective of whether particular products are 'needed' or are 'good for you'."

That even the ONS acknowledges this is a vague expression of how much more or less Britons are paying for what they consume does not deter those squawking the recent "squeeze on incomes" narrative based on the top-line CPI reading.

When CPI spiked to 2.7 percent in October, from the previous month's 2.2 percent, agenda-driven commentators did not let the mitigating facts underneath the central figure stop them reaching for the megaphones and bellowing to all who would listen that this was disastrous.

Deeper inspection of the ONS report showed that this leap was in fact due to the trebling of the cap on university tuition fees pushing up education costs - which are included in CPI's basket of goods and services - by a whopping 19.1 percent, skewing the headline figure.

Ros Altman, director-general of the Saga group and outspoken figurehead of the biddy lobby, used her Twitter account to lash out at the Bank of England.

Altmann is a prominent critic of the Bank of England's £375bn quantitative easing programme.

She argues that this stimulus is inflationary, and when you couple price rises with the record-low base rate of 0.5 percent purportedly eroding pensions, her core constituent group, the retired, are the hardest hit in the economic downturn.

This is the same downturn that has turfed hundreds of thousands out of their jobs, slashed vital public services for some of the most vulnerable in society, and left a jobs market so dry that 16 to 24-year-olds are left feeling despondent about their own bleak futures.

"Inflation rising again, more evidence that Bank of England policies are failing #stagflation is here, need new thinking," (sic) she tweeted.

"Older generations inflation higher than national average, as real interest rates negative their income & capital keep falling." (sic)

Let's look deeper still into the last set of CPI data for the UK economy.

Food prices rose, in all, by 0.5 percent across the month in October. This was the second most significant upward pressure on the headline figure after the anomalously large education costs.

Did food, as the Altmanns of this world would have it, become more expensive because the Bank of England, through QE, is buying up billions of pounds of gilts from foreign investors in UK government debt?

Or, and prepare yourselves for a controversial notion that deviates wildly from the path or normal thought, was it the fact that world food prices are rising for a number of non-monetary stimulus reasons, such as the most severe drought for a quarter of a century in the US this summer which destroyed many grain crops?

You, dear reader, can draw your own conclusions.

Below every top-line inflation figure is the real story that gets ignored by those with a political point to make.

This is particularly true when, as above, there is one anomalous factor that bares no real consequence to the average Briton, drastically altering the main number.

An argument could be made for the ONS to produce an underlying CPI figure that mitigates these one-off afflictions that are so often misrepresented.

Moreover, CPI, despite being the leading measure of inflation, does not include rent or mortgage payments in its basket, massive bills for any household, unlike its lesser-referenced sibling the Retail Price Index (RPI).

Again this puts CPI's use as a "cost of living" measure into perspective, as it does not account for the most significant monthly outgoing for Britons - keeping a roof over their heads.

Employment and unemployment

Like CPI, the ONS labour market statistics also fall victim to these irritating apparatchiks.

There are many nuances to the headline figures of employment and unemployment.

For example, full-time students can be counted as unemployed, while some of those who are claiming job seekers allowance can be counted in the employment category, though only if they work fewer than 16 hours a week and under a certain wage threshold.

That is how you can get the situation arising when unemployment falls, but the claimant count rises.

Employment is an enormous umbrella under which seemingly everyone who has at least uttered the word "work" in the given month, as well as their pet cat, is included.

"Anyone doing one hour or more a week of paid work is counted in the employment figures," said the ONS guide to its labour statistics.

"This includes all people placed with employers on government supported training programmes.

"The employment estimates also include unpaid family workers, who work in a family business and benefit from the profits of the business although they do not receive a formal wage or salary."

Therefore the headline employment figure from the ONS is all-but-meaningless.

It is not indicative of anything other than simply to confirm that there are a number of people in the country doing at least something that can be, in the loosest terms possible, described as a job.

Again this does not stop those who dogmatically cling to a political party, ideology or campaign goal from misrepresenting the headline number, wilfully or stupidly, to suit their narrow interest or agenda.

For a genuine case to be made you must plumb the depths of the data and draw out the detail.

Okay, so employment has gone up - but how much of that is full-time work, and how much is part-time?

You may see employment go up by 100,000 in a month, but that is not much use if 80,000 are working under five hours a week and the other 20,000 are on a government-subsidised work programme.

As an appeal to the people who want to engage in debate about the data - look at it first.

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