Lesson 12 · 4 min · 7 things to do
Taking a money headline apart
Everything in this course is hiding inside ordinary headlines. This lesson is six of them, and the question is only ever: which idea is doing the work?
- Year to February 202310.4%Year to February 20243.4%
The UK's real figures. Headline: "Inflation falls to 3.4% — relief for households." That was the UK in February 2024. What can a reader say is true?
- Yes.Speed, not level. Two years of rises stack to about 14%, and the relief is that the climb slowed. Nothing came down.
- Not quite.Falling inflation is a slower climb. Prices fall only below zero, and 3.4% is a long way above it.
- Not quite.The rate is near normal. The level is 14% above two years ago, and it stays there.
Headline: "Savings rates hit 5% — best deal in a decade." Tap the number that decides whether 5% is a good deal.
Tap the part of the figure that answers it.
Savings rate on offer5%Inflation that year7%Pay growth that year6%The central bank's rate5.25%Inflation that year
Yes.The rate you keep is interest minus this. Five against seven is a loss of about two, and the decade's best deal is a slower way of losing.Savings rate on offer
Not quite.This is the headline, and the headline is the thing being tested. It cannot judge itself.Pay growth that year
Not quite.Pay is what a worker keeps; it says nothing about what a saver keeps. The saver's shopping is priced by inflation, not by wages.The central bank's rate
Not quite.This is why the savings rate is 5%, not whether 5% is enough. The bank's rate is a cause; the test is prices.Which idea is each headline hiding?
Inflation halves; prices still rising
Pensioners' costs rise twice as fast as the official figure
Savers lose £8bn to inflation despite record rates
Inflation back at target; prices 20% above 2021
Renters face inflation of 8% while homeowners see 2%
Pay rises 6%: the biggest real-terms cut in forty years
Yes.Three ideas cover most of the money news there is. The word that gives each away: still, twice, despite, above, while, real.Headline: "Rate rises will crush inflation." An illustrative year. Set where the price rises came from, and how hard the bank raised rates.
Inflation a year later10%Spending cut to get there0%Illustrative. A gas shortage · NoneRises driven by a gas shortage, no rate rise. A year on, inflation is 10% and spending has been cut by 0%.
Inflation a year later9%Spending cut to get there4%Illustrative. A gas shortage · SmallRises driven by a gas shortage, a small rate rise. A year on, inflation is 9% and spending has been cut by 4%.
Inflation a year later8%Spending cut to get there8%Illustrative. A gas shortage · LargeRises driven by a gas shortage, a large rate rise. A year on, inflation is 8% and spending has been cut by 8%.
Inflation a year later10%Spending cut to get there0%Illustrative. Half and half · NoneRises driven by half and half, no rate rise. A year on, inflation is 10% and spending has been cut by 0%.
Inflation a year later7%Spending cut to get there3%Illustrative. Half and half · SmallRises driven by half and half, a small rate rise. A year on, inflation is 7% and spending has been cut by 3%.
Inflation a year later4%Spending cut to get there6%Illustrative. Half and half · LargeRises driven by half and half, a large rate rise. A year on, inflation is 4% and spending has been cut by 6%.
Inflation a year later10%Spending cut to get there0%Illustrative. A borrowing boom · NoneRises driven by a borrowing boom, no rate rise. A year on, inflation is 10% and spending has been cut by 0%.
Inflation a year later5%Spending cut to get there2%Illustrative. A borrowing boom · SmallRises driven by a borrowing boom, a small rate rise. A year on, inflation is 5% and spending has been cut by 2%.
Inflation a year later1%Spending cut to get there4%Illustrative. A borrowing boom · LargeRises driven by a borrowing boom, a large rate rise. A year on, inflation is 1% and spending has been cut by 4%.
When does a big rate rise cost the most for the least?
- Not quite.That is where a rate works best: the boom is made of borrowing, so dearer borrowing is the exact cure. Inflation falls nine points for a 4% cut in spending.
- Yes.A rate reaches demand. A shortage is not demand, so the brake works on the wrong wheel: people spend 8% less and inflation falls two points.
- Not quite.Same lever, three different results. The lever is the same; what it is pulling against is not.
Move both controls to see how they work against each other.
- Prices, from 100120Pay, from 100122
Headline: "Prices up 20% since 2021, but wages up 22%." Start both at 100. How much MORE does a month's pay buy now, in per cent?
%Divide 122 by 120.
Yes.About 1.7%, not two. The gap is 122 over 120, not 22 minus 20, and after four years of headlines it comes to less than a coffee a week. Headline: "Bank holds rates as inflation returns to 2%." The target is met. Inflation ran 2%, 9%, 7% and 3% over the last four years. Slide to what a £100 basket from four years ago costs now.
Slide the marker to your guess and lock it. Nothing is scored — the point is to have your own number before you see the real one.
Four years ago · £100you said · £100actually · £122.50The basket now: —
The target is met and the basket is more than a fifth dearer than it was. Back at 2% describes this year's speed; the four years of climbing are still in the price, and 2% a year adds to them from here.A money headline is almost always about a speed, an average, or a number in pounds. The question is only ever: what did it leave out?
- The debt, in pounds4%National income, in pounds9%
How much each grew that year. Headline: "Government debt falls to 95% of national income." Prices rose 8% that year, and the debt in pounds went UP. Which idea explains it?
- Not quite.The pounds owed went up. Nothing was paid back; the thing it is measured against grew faster.
- Not quite.Both numbers are right. Debt in pounds rose, and debt as a share of a bigger, inflated income fell. The headline chose the second.
- Yes.Who gains and who pays. The country's income rose with prices; the debt was fixed in old pounds. Nobody paid anything back, and the ratio fell.
Lesson complete
Every money headline is a speed, an average, or a count of pounds. Ask what it left out.
Back to the course →