Negotiation, Negotiation, Negotiation

UK Property Investment news and comments from Mark Harrison of YourPropertyExpert.com

Why do we count retail sales differently?

Posted by markharrison on June 27, 2008

Time for a bit of a rant.

I suspect that you, like me, are feeling some impact of the credit crunch, or at least the rate of inflation. We know that the “official” figures on inflation only show about 4%, but the real figure seems much higher in most things we buy regularly. (I don’t know about you, but I buy petrol a lot more often than I buy plasma TVs.)

However, about a week ago, the Office for National Statistics published the latest retail sales figures, which show that we’re buying more.

The problem is, we count those figures very differently from the way the rest of the world does, and that the fact that many goods (electronics, DVDs, etc) are falling in price confuses matters.

Supposing you have the following sales figures.

  • 2007, bought 20 DVDs at £10 each, so spent £200
  • 2008, bought 25 DVDs at £5 each, so spent £125

If you were in any G8 country apart from the UK, that would show as a decline in sales of 37.5%, because £125 is a lot less than £200.

In the UK however, that shows as an increase of 25%, because you bought more DVDs this year!

Hence, it looks like figures are booming.

The problem is, central banks around the world use figures like this to decide interest rates. I know that (in principle), Central Bankers are sophisticated enough to understand the issue… but why, oh why, does the UK insist on measuring things differently. A lot of inflation is imported, and knowing how interest rate changes will strengthen or weaken Sterling is something the MPC have to take into account – surely everyone publishing figures in the same way would make things clearer?

Photo credit: Copyright akeg – used under Creative Commons licence.

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