The anchor is dragging

There are many similarities between the U.S. and the U.K. - both countries have high trade and budget deficits, in both countries manufacturing is slumping while financial services remain healthy, both countries have a housing bubble with an indeterminate fate, and, most importantly, the wealthy have never had it better while the middle class feels squeezed.

One big difference between the two countries is how rising prices are treated in the media.

In the U.S., an emphasis on "core" inflation of near two percent continues to be heard, even though the headline number has been much higher in recent years. Also, by many accounts (including here), the consumer price data is acknowledged to be "fundamentally flawed" as it wildly distorts home prices via "owners' equivalent rent", under represents health care by a wide margin, and contains dubious quality adjustments.

In the U.K., the media emphasis has been in the opposite direction - as in, higher inflation. The Telegraph has been out in front on this issue for many, many months now as each benign two and three percent inflation report sparks new objections by writers and citizens. With the assistance of an economic research firm, the newspaper has gone so far as to calculate more realistic inflation rates for different types of consumers.

In yesterday's Middle class inflation hits 6 pc, the point of an alternate government reality on rising prices was made clear:

The cost of living is rising at almost double the rate of inflation for many middle class families.

As the Bank of England grapples with inflation of over 3pc and a $2 pound, research shows the middle classes experiencing inflation of 6pc driven by higher food and furniture prices.

Figures produced for The Daily Telegraph by consultancy firm Capital Economics, based on a typical "shopping basket'' of goods and services for middle Britain, shows inflation rising from 5.4pc last October.



The research shows that some pensioners experienced inflation of 8.4pc in March because of higher electricity and gas bills over the past couple of years. The rate actually came down from 8.6pc in February as energy price inflation dropped back slightly.

The newspaper also provides a spreadsheet where individuals can plug in their own income and expenditure figures in order to calculate a "personal rate of inflation".

Being handy with spreadsheets, this seemed like a reasonable thing to do here:

Note that these are not my personal numbers - reasonable guesses were made as to what might be typical and no time was spent trying to "game" the system to get a higher inflation rate. Try it for yourself and see what your personal inflation rate would be if you lived (or currently live) in the U.K.

Nevertheless, nine percent seems pretty high - certainly a much higher number than what any central bank would like to have associated with the word "inflation". Many in the U.S. mainstream financial media would label you a conspiracy theory nutball if you ever said that real inflation is closer to nine percent.

It's a lot different across the Atlantic Ocean.

Another story from yesterday's Telegraph makes clear the current problems with rising prices. In King tries to turn down the heat, by former Economist writer Ambrose Evans-Pritchard (with the irresistible caricature of the Governor of the Bank of England), yesterday's communique to Chancellor Gordon Brown was described as follows:

Mr King's letter said the inflation rise was "in part" the result of a 25pc oil spike since early February and a "weather-induced global reduction in supply" of food, but only in part. He also flagged the "continuing rapid growth of money and credit".

But he warned that the MPC was on high alert to "upside risks" to inflation and would ensure that expectation remained anchored on the 2pc target. "It is important to prevent that anchor from dragging," he said.

Mr King was too polite to point out that the Bank of England is rowing against a strong current, forced to tighten monetary policy to offset the inflationary effect of Gordon Brown's spending policies.

Why doesn't the U.S. media do work like this?