Statistical Inflation Diverges from Reality: In UK, e-Cigarettes and Craft Beers have been included

Governments arbitrarily conjure up statistical numbers to show what they want to show…

So e-cigarettes, craft beers, streaming music among other items have been included in the UK’s government statistical measure of inflation.

From the BBC (bold mine)

E-cigarettes and specialist "craft" beers have been added to the basket of goods used to measure the UK's inflation rate.

The additions are part of the Office for National Statistics' (ONS) annual revision of the basket.

The cost of music streaming services has been added as well, but sat-navs have been dropped.

The basket of goods currently contains 703 items and services, of which 13 are new this year after eight were removed.

The inflation rate currently stands at a record low of 0.3%, as measured by the Consumer Prices Index.

Price survey

The ONS said that e-cigarettes had been added because many smokers were using them.

Sales of "craft" beers have been brought in because more money is being spent on them, along with a rise in the shelf space devoted to those beers in shops and supermarkets.

Although only around 700 items have their prices tracked each month, many are measured in several places. So 110,000 prices are collected from 20,000 shops in the UK, with another 70,000 prices measured online.

Revisions to this year's basket continue to reflect the fast-moving change in the use of technology.

For 2015, the cost of music streaming services has been included, along with subscriptions to online console computer games.

Headphones have been added too, as well as mobile phone accessories such as covers and chargers.

So the average UK residents have now been shown as being smokers and craft beer drinkers, yet pity the non-smokers and non craft beer drinkers.

Yet how “many” is “many” as to merit the inclusion of e-cigarettes in the basket? Even among craft beer drinkers, not everyone spends the same. Some spend more than the others. What if the monied class have been spending more on craft beers for retail outlets to devote shelf space on them? If this supposition holds true then this skews the weighting of the inflation basket to the expenditures by the monied class. Or said differently, the CPI basket may reflect more on expenditures by the elite than by the average.

The point of the above hasn’t been about e-cigarettes or craft beer drinkers but about how statistics accurately reflect on the individual’s spending patterns.

This differentiates between statistics—aggregation of numbers based on arbitrary parameters set by political agents—and economics—how resources are allocated subjectively by individuals.