Finance Matters

Posts Tagged ‘inflation’

The average price of a house in England and Wales fell by 0.6 per cent to £160,372 in March according to new Land Registry figures.

However, there were wide regional variations with prices falling by 1.8 per cent in London and 4.1 per cent in Wales, but increasing by 5.6 per cent in the North East.

This contrasts with figures for the full year to March, which show prices in London rising by 0.7 per cent but falling by 2.8 per cent in the North East.

The Land Registry figures also contradict recent data from the Halifax, which suggests that house price increased by 2.2 per cent in March.

However figures from Nationwide showed a 1 per cent fall.

Analysts suggest that the continued low level of property sales is distorting price indexes and causing fluctuations.

According to the Land Registry, sales volumes in the six months to January showed only a slight increase from the same period the year before.

Russell Quirk of online estate agency eMoov.co.uk said: “There’s neither rhyme nor reason to house prices right now.

“With transaction levels so low, prices can swing dramatically from one month to the next. And that’s what’s happening month after month.”

Last month’s news that the UK had entered a double-dip recession caused economists to predict a sharp fall in house prices.

Although house prices have been falling, when the effect of inflation is excluded their headline values have remained stable in recent months.

However the return to recession is expected to cause further damage to consumer confidence and lead to a more significant fall in house prices than has been experienced recently.

Howard Archer, chief UK economist at IHS Global insight, said: “It is not good news for the housing market, given it’s already struggling.

“In the current environment it’s quite a large step for people to commit to buying a house.”

The cost of the majority of leisure activities has grown to its highest level for a decade while the amount of income people have left after paying all their bills is falling.

According to new research by the Halifax, the cost of football tickets, train tickets, petrol, eating out and going to the gym have all soared since 2002.

Gardening is the activity which has been least affected by price rises, having increased by 17 per cent over the last decade.

In contrast, the average price of a Premier League football ticket has gone up by 184 per cent to £48.90, compared with £17.22 in 2002.

The price of train tickets has increased by 61 per cent on average over the same period, petrol now costs 89 per cent more and the cost of eating out has increased by 42 per cent.

Going to the gym and the cinema now cost 48 per cent and 46 per cent more respectively than they did in 2002.

In comparison the rate of consumer prices index (CPI) inflation has increased by 29 per cent over the same period.

Meanwhile the amount of disposable income has fallen to £144 a week for the average family, making it even more difficult for families to afford leisure activities.

According to the latest figures from the Asda Income Tracker, family spending power fell by £10 a week in March.

Household incomes are under pressure from high inflation, high unemployment, and wage freezes or low wage rises.

Charles Davis Head of Macroeconomics, Cebr, said: “While growth in the price of essentials is likely to fall back slowly this year, the current tough conditions in the UK labour market look set to prevail.

“Average earnings growth is expected to trail inflation over 2012, keeping pressure on household incomes.”

This chart from Bill McBride at Calculated Risk shows one reason why the economy is still sputtering along: Because Americans are still making much less money than they were before the recession.

The chart shows real personal income (adjusted for inflation) minus “transfer payments” as a percent of the total before the crash. Transfer payments are welfare payments, unemployment insurance, and other government subsidies. When transfer payments are included, the income picture looks better, but of course those transfer payments are just more government spending.

The chart also shows how much more devastating the recent recession was than other recessions for the past 50 years (click for larger):

Why is personal income so lousy?

Because employment still hasn’t recovered to pre-recession levels. Here’s a second chart from Calculated Risk showing current employment as a percent of pre-recession employment.

SEE ALSO: IT’S OFFICIAL: Keynes Was Right

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Over the past year, one of the most popular features here at Get Rich Slowly has been the monthly “how much do you spend on X?” question. I started these informal and unscientific surveys on a whim. I wanted too see what sort of spending ranges we held as a population of relatively money-savvy citizens.

In the past year, we’ve looked at the following spending categories:

• How much do you spend on food?
• How much do you spend on clothes?
• How much do you spend on gifts?
• How much do you spend on health insurance?
• How much do you spend on housing?
• How much do you spend on kids?

I’m not sure why this series of questions has been so popular. I guess there’s something deep in each of us that wants to compare our spending with others, to see if the amounts and the ways we spend are normal.

One way to answer questions like this, of course, is to compare your spending to a broader average. I do that by looking at government data. My favorite benchmark is the U.S. Bureau of Labor Statistics’ Consumer Expenditure Survey, which offers a ton of info about how Americans actually spend their dollars. Another source of info is the U.S. Bureau of Labor Statistics’ Consumer Price Index (which is generally used for tracking inflation).

Earlier this month, the Planet Money blog from National Public Radio used the Consumer Price Index to put together a couple of graphics representing what America buys. The results are interesting for a money geek like me.

For instance, did you know that Americans spend about one percent of their income on pets? And they spend another one percent on alcohol? (I’m not sure what that says about us, that our spending on pets and alcohol is roughly the same.) We spend 8.6% of our income on groceries, and we spend another 5.7% of our income on dining out.

For me, the funnest part of the Planet Money visualizations was the comparison between current spending and past spending. NPR’s Lam Thuy Vo whipped up this visual comparison of how our spending habits have changed over the past 62 years:

Data from BLS, chart from NPR.

Last month, The Atlantic also took a look at how Americans earn and spend money. Like NPR, and like me, The Atlantic couldn’t help but note that food costs have plummeted over the past sixty years — despite the fact that Americans spend nearly half their food budgets on dining out! And look how much cheaper clothing has become too!

Unfortunately (or perhaps fortunately, depending on your point of view), we don’t seem to have banked the savings we’ve gained on food and apparel. Instead, we’re plowing more money than ever into housing. According to the U.S. Census Bureau, the average new home was 2349 square feet in 2004, up from 1695 square feet in 1974 — and just under 1000 square feet in 1950.

Anyhow, I don’t have any real takeaways for you this morning. I just find it fascinating to see how the average person spends. To that end, you can be sure that there are more “how much do you spend on X?” questions coming in the future!

Do you like to compare your spending to a broader average? What are your favorite sources for comparing numbers? Do you worry when your spending on, say, housing is far greater than the norm? Or do you just figure different people have different priorities? (For myself, as long as I’m falling within the Balanced Money Formula, I’m happy.)

[NPR: What Americans Buy]

Nomura’s  Zhiwei Zhang warns of a ‘sever and widespread’ labor shortage in China, as evidence by this chart, which shows the ratio of labor demand to labor supply.

The upshot is that with the red line breaking out, inflation is likely to soon follow, presenting some serious structural issues for the government to deal with.

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