Public conflate ‘halving inflation’ with declining price levels
In January, Rishi Sunak pledged his Government would ‘halve inflation’ by the end of the year. When Sunak talks of ‘halving inflation’, his intention is to halve the rate at which the price of goods and services is increasing. The Office for National Statistics tracks prices for an imaginary ‘basket of goods’, which it aggregates to produce the Consumer Price Index (CPI). The CPI measures the difference between how much a good or service costs today and how much it cost in the same month of the previous year. The CPI rose by 10.1% in the 12 months to January, so fulfilling his pledge would mean prices in December 2023 would on average be 5% higher than they were in December 2022.
When Sunak made his pledge most forecasts assumed the target would be met comfortably. Inflation is, however, proving stickier than anticipated. Despite 12 consecutive interest rate rises by the Bank of England, the annual CPI inflation for May published today was 8.7% – unchanged month-on-month from April. Core inflation rose to 7.1%, its highest level since 1992. Tomorrow the Bank of England’s Monetary Policy Committee is expected to raise interest rates again.
Ahead of this we polled 2,005 adults in the UK on their understanding of the Government’s pledge to halve inflation. Just 23% of respondents were able to accurately identify that even if the rate of inflation were to halve by the end of the year, in general goods and services would still cost more than they do now. A majority thought they would either cost the same as they do now (31%) or less than they do now (32%) – the latter being selected more by those intending to vote Conservative (36%) than any other party.
This is problematic for the Government. The pledge frames the issue using specific technical language, but does not acknowledge the measure is a ‘rate’. This likely contributes to misunderstanding. While 29% correctly calculated what halving inflation would do to the price of bread in the example below, 38% thought it would lead to deflation.
More people believe that halving inflation would lead to declining price levels than accurately think it would slow the rate at which prices are increasing. The 5 pledges were designed so that voters could evaluate the Government’s performance and the Prime Minister could present himself as results-oriented. Yet a majority do not understand what the pledge intends to achieve, and many will be disappointed to learn the answer is not reduced price levels.
The Conservatives have presented controlling inflation as the responsibility of the Government, which is perhaps contributing to the Government being viewed as slightly more responsible for meeting the UK’s 2% inflation target than the Bank of England - despite this forming part of the Bank’s mandate. Those intending to vote Labour were +10% more likely to view the Government as most responsible for meeting the 2% target than Conservative voters, suggesting there may be an element of voters placing responsibility where it suits them. Nonetheless, it may prove difficult for the Conservatives to hold that they are responsible for (potentially) cooling the rate of inflation, but not responsible for rising interest rates which will reverberate through mortgage markets.
British politics is currently overcome with uniformity regarding the most important issue facing the county: the cost of living. Using MRP modelling in collaboration with Royal Holloway University, we find the cost of living is identified as the most important issue facing the country in all but three British constituencies. The squeeze on living standards will dominate the next election; how parties diagnose the ills of the British economy and the proposals they put forth to address them will be crucial. Sustainably reducing the rate of inflation is of central importance, but voters are clearly confused by the pledge to ‘halve inflation’. Even if this is achieved, it will feel underwhelming to the 32% expecting it will lead to falling prices.
Get the data
21st June 2023 - Survation conducted an online poll of 2,005 adults aged 18+ living in UK on their understanding of inflation. Fieldwork was conducted between 26th - 31st May. Tables are available here.
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