How to measure the real rate of inflation? Look at school fees

What is inflation actually running at? Most people will tell you that their personal inflation rate appears to be running way higher than the official CPI numbers, and if you look at the individual prices you pay on a daily basis it does seem unlikely that price inflation in the UK could really be running at under 3%.

It is also true that the index the government use sometimes changes (let’s not forget than only a few years ago the RPI was the standard measure of rises in  UK prices – no one ever mentioned the CPI) and that the baskets of goods that are used to make up the index change constantly.

In the US, for example, the way in which inflation is calculated has been changed more than 20 times in the last 35 years. According to John Williams of Shadowstats.com, if it were measured as it was in 1990 it would now be around 5% (the official numbers today have it at 2.2%), if it were measured in the same manner as in 1980 the true rate would be almost 10%. And in the UK we are currently discussing changing the calculation of our RPI.

This all makes it hard to really compare where we are with where we were. So what can we look at if we really want to see how much the prices of the things we buy every day are really rising? I wonder if private school fees might be one thing to think about.

Now before you all go nuts in the comments section about elitism, I will point out that this idea has nothing to do with who pays for it and how, it is simply to do with what it costs to create a school community. After all, a school needs and uses all the things most communities need and use. It hires staff. It uses energy for heating lighting and transport. It buys food. It buys computer equipment and furniture. It buys sporting equipment and it pays for building maintenance and insurance – just like all other communities.

The difference between a private school and other communities is that these costs can’t be much fudged, delayed or farmed out to other organisations. The school has to put a cost price on its services every year. So regardless of who ends up using the community in question, the price is interesting.

So what is inflation if you look at it this way? It is currently running at 5% and has been almost twice the rate of reported inflation since 2002, according to a report from Lloyds TSB (68% vs 37%). It is also worth noting that in 2002 the average private school fee was equivalent to 27% of average earnings. Now it is 35%. That gives you some measure of just how much real earnings have fallen in the last decade.

This may not be ideal, but seems a good starting point, until we in the UK have something like shadowstats in the US, we have no easily identifiable means of perceiving he true rat of inflation.