Lesson 06 · 4 min · 6 things to do
Why your basket is not the official one
Explain why a measured average misses most households.
The official inflation figure is 4%. Your own costs went up about 9%. Who is wrong?
- Yes.The official number weights everything by what the country spends in total. Your rise depends on what YOU spend on, and the two only match by accident.
- Not quite.The weights and the method are published, and independent statisticians produce them. Suspecting a fix is a way of avoiding the simpler answer: it is measuring a different basket.
- Not quite.A household's own bills are data. They are just data about one basket rather than the national one.
Food and fuel rose 12% this year. Everything else rose 2%. Slide to change how much of a household's income goes on food and fuel.
10%30%55%- Food and fuel (up 12%)10% of spending
- Everything else (up 2%)90% of spending
10%A wealthy household. Their own inflation is 3% — barely above the headline.
- Food and fuel (up 12%)30% of spending
- Everything else (up 2%)70% of spending
30%A middle household. Their own inflation is 5%.
- Food and fuel (up 12%)55% of spending
- Everything else (up 2%)45% of spending
55%A poor household. Their own inflation is 7.5% — two and a half times the wealthy one's.
Every household in those frames faced exactly the same prices. Why did their inflation rates differ so much?
- Yes.The prices are one set of facts; the basket is another. Poorer households hold more of the fast-rising things, so the same year is a harder year for them.
- Not quite.They often do — smaller packs, no car to reach the cheap shop. But that is a second effect, and it is not what moved the numbers here.
- Not quite.The shares are of their own spending, not of a shared pot. Both could have spent more; the mix is what differs.
Move the control to see what changes.
An inflation figure is an average with weights. Change the weights and you get a different, equally true, figure for the same year.
A household spends 40% of its money on things that rose 10%, and 60% on things that rose 2%. What was its own inflation rate, in percent?
%Yes.0.4 × 10 + 0.6 × 2 = 5.2. That is the whole method behind every national statistic you have ever read — the only hard part is measuring the weights.Rents jump 15% in a year. Everything else is flat. Who feels a big rise?
A renter who moved flats this year.
An owner who paid off their mortgage in 2009.
A renter halfway through a three-year fixed tenancy.
A student moving to a new city for the first time.
A landlord with one flat and no mortgage.
Yes.A price only reaches you when you actually pay it. The same 15% is a catastrophe, a headline or nothing at all, depending on the date of your contract.Two people argue about whether prices are rising. Both are honest and both looked at their own bills. What is the most likely reason they disagree?
- Yes.An average hides its spread. In a year when energy doubles and electronics fall, the truthful answer to 'are prices rising?' depends on your basket.
- Not quite.Memory is genuinely unreliable about prices — but the effect here is much larger than the error, and it survives when both check their receipts.
- Not quite.That would change the level, not the direction. Both can be looking at the same twelve months and still be right.
A statistics office announces that the basket has been reweighted: less on cigarettes, more on streaming. Why does it do this?
- Yes.A fixed basket slowly becomes a museum. The awkward part is that changing it also makes the new figure not quite comparable with the old one, and both problems are real.
- Not quite.A reweighting can push the figure either way, and often does within the same year. It is a maintenance job, not a lever.
- Not quite.Some do, but most reweighting is about SHARES: the same goods, bought in different proportions than a decade ago.
Lesson complete
Inflation is an average with weights, and nobody's basket is the average one.
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