Our group was very varied in terms of age and nationality which is evident in the weight based calculations. Individual spending patterns differ with national customs and age, residence and preferences and that is clearly visible in the appendix, which shows that the individuals within the group all recording numbers above or below the 1000 point average. This may be caused by higher or lower rent or differing student loans between the individuals for example. This is important as student loans make up the bulk of a students’ income over the time of education and rent payments are most likely students’ largest financial outgoings.
Since the group also varied in age, we had individuals who preferred to stay at private residences or lease apartments on the private market rather than staying at the universities’ house of residence and this explains the differences in rent costs. Like stated above, our results at the end of the observational period recorded a 0,001 percent fall in inflation according to the weighted inflation index, or CPI. The official figures for the period, however, showed a -0,1 percent fall in inflation and movement toward deflation, or negative inflation (Office of National Statistics, Latest Inflation Rates, 2009).
This is most likely due to the difference in weighting between our price index and the official index. Student spending patterns differ from that of the average household both due to the age of the individual and the number of persons per household, usually students are only responsible for their own individual expenses and do not support a family. It also shows how the official statistics do not necessarily represent all groups within the society. The group observed different experiences of inflation according to individual or group spending patterns.
A single person household has a different spending pattern from a family of five; the elderly have a different pattern from students and the disabled have yet another pattern. The average weight and spending patterns are exactly that, average, and can only give a rough indication of inflation. As the data for the period of February will not be published before the deadline the comparison will only take place with the data from January, published on 17 of February. Retail Prices Index (RPI) inflation slowed to 0. 1 per cent in January, down from 0.
9 per cent in December and it is the lowest rate it has been since 1960. The monthly change for January in Retail Price Index is -1. 3%. The CPI went down to 3. 0% from 3. 1% and that is 1. 0% above the 2. 0% Bank of England target. The monthly change for Consumer Price Index for January is -0. 7% In contrast with EU the CPI inflation for December 2008 was 1. 6% and the estimate inflation for January 2009 is 1. 1 % (Eurostat, the Statistical Office of the European Communities). All this data clearly shows disinflation in EU.
The heavier weight on the downward change in inflation annual rate was caused by transport costs where the price of fuels and lubricants fell this year but rose in 2008. The average price of petrol decreased by 2. 9p per litre between December 2008 and January 2009, to finally still at 86. 3p. Diesel prices fell by 4. 0p per litre this January, to stand at 98. 4p. In addition fall in car prices, lower costs for vehicle maintenance and repair and a decrease in air ticket costs also contributed to the decrease in inflation.
Additionally a significant influence came from housing sector contributing to downward pressure on inflation. The main effect came from mortgage interest payments, house depreciation, housing services, overall housing rents decreased this year, compared with a rise in 2008. There was also a downward effect from fuel costs with electricity and the cost of heating oil falling this year with were increasing a year ago. The deference between CPI and RPI could be explained by significant contribution from housing with the main factor coming from mortgage interest payments and house depreciation, which are excluded from the CPI.
In contrast there were many factors contributing to an increase in inflation: recreation, alcoholic drinks, cultural services, newspapers, books stationery, the price of toys increased following heavy discounts in December, Christmas time. According to BBC News the inflation will drop even further as the drop in oil prices will bring down the cost of fuel and as retailers try to attract customers with price reductions and promotions. Jonathan Loynes from Capital Economics described the modest decline as a “temporary aberration reflecting the partial reversal of some very aggressive price discounting in December”.
Inflation is heading towards deflation and that will create new problems. If that is the case people are likely not to invest and not to spend money as they would rather wait for price reduction, the aggregate demand will decrease. Consequently that will slow down economical growth. The consistent weekly price checks have enabled the group to study how inflation can affect students on a fixed income. It is fair to say that the findings cannot be taken to show the results of inflation on all students due to the amount and type of the goods, but rather works are indicators for the consumption pattern of the project group.
The amount and the type of goods are not representative for student as a whole, as there are only 43 goods being bought over a five week period and there are certain goods and services that some students might buy that are not included in the project basket. The official data, which studies a wider basket of goods, will show the needs and wants of more households. At the beginning of the five week project, the group speculated that there would be minimal price changes in goods and services. Overall, there were only 8 products that changed price during the observation period.
The predictions made by the group were thus confirmed by the findings. The changes can be regarded as minor, considering that the basket contained 43 goods and only 8 changed, accounting for 21 percent of the basket. It is perhaps also worth mentioning that all of the changes occurred in the second week of the project. The price changes were mainly found in Asda, Tesco and Somerfield and can be found in the appendix, table 2, table 3 and table 4 with respective weights and quantities. Tesco: Beef Steak Mince (500g) increased from 2. 74 to 2. 89. This is a 5. 4 percent increase in price.
The effect that this had on students was minimal, when considering the allocated average weight of 9/1000. Somerfield: A Six Pack of Medium Eggs decreased in price from 1. 82 to 1. 36 during the second week. This is a 25 percent fall in price. Even though the average quantity bought for this product was rather high in the group considering, the low price generated a low weight of 10/1000. This price fall is partly the reason behind the shape of the Laspeyre index, with a significant plunge during the second week. Somerfield: 2kg of Rice decreased in price from 4. 33 to 3. 69 during the second week.
This is a 14 percent fall in price. The effect that this had on students would seem to have been of medium relevance. The purchasing pattern of the student group indicates that rice accounts for 8/1000 of the income, making it the largest expense in the carbohydrate category. Comparing the group to an average household would reveal a similarity in spending. Rice would normally constitute a large part of a staple diet of a household. According to the observations, rice does constitute a great part of the student spending or diet. Somerfield: The price of 1 packet of Super Noodles fell from i?? 0. 62 to i?? 0. 49. This is a 20.
9% fall in price, and the effect that this had on students over a month could be understood as being minimal, due to the fact that the weight allocated to the product in question was 2/1000. This low weight can be explained by the fact that it is possible that Super Noodles are not highly valued by students. Somerfield: A 100g jar of Nestle Golden Blend Coffee increased in price from i?? 2. 90 to i?? 3. 09. This is a 3 percent increase in price. The effect that this had on students would appear to be rather high, as coffee constitutes for a weight of 7/1000. Somerfield: 1 Litre of Tropicana Pure Orange Juice increased in price from 1.
85 and 2. 00. This is an 8 percent increase in price. So the effect of the price increase would seem to be rather large. The weight of orange juice is similar to that of coffee, marking 7/1000. ASDA: The price of cucumbers increased from i?? 0. 99 to i?? 1. 90. This is an increase of 91 percent. This could be understood to have had little effect on student spending, as despite the increase in price there was still an average of 2 bought per student over the 5 week period. ASDA: The price of tomatoes increased from i?? 1. 29 for 1kg to i?? 1. 49 for the same amount. This was an increase in price of 15.
5 percent, and the effect that it had on the spending patterns of students can be understood to have been medium as tomatoes account for a weight of 3/1000. The impact is not described as low due to the fact that tomatoes posses relatively high weights in their category. The Weighted inflation rate, also referred to as CPI, was the primary measurement method for the project inflation and was calculated through the formula described in the section 4 of this report. The final inflation figure observed showed a deflation of -0. 001 percent (see appendix, diagram 1). The simple aggregate inflation rate generated an inflation of 0. 101 percent.
The inflation figures retrieved through the mentioned method, are merely subtractions of the last weeks overall prices over the first weeks prices. The number produced differed from the weighted inflation rate (CPI), as it does not take into account the quantity purchased of each product, or the weight it has on the income (see appendix, diagram1). The Laspeyre index, in contrast to a weighted index (the CPI), measures the quantity purchased in relation to the price change. The quantities remain constant throughout the observation period, but the overall price of the basket changes through the functions in the separate product prices.
The end result, when measuring index and inflation through the Laspeyre formula, illustrates overall price changes from week to week. That means that the overall purchasing price for the basket of goods, (with a fixed quantity consumed for each individual product remains constant), fluctuates significantly due to small price changes in goods with higher quantities. Week 2 of the observation period experienced this phenomenon as there are rather significant price falls for eggs and rice (see appendix, diagram 1). The group observations showed the extent on the effects of inflation on students as a group in society.
The study showed how a single person student household has a different spending pattern, and ultimately a different value and weighting system, than that of other groups in society, such as families with children to support or middle aged men. The only way to truly measure student spending and the effect of inflation on students would be to use the same base products, the same amount of products, the same prices over the same time period, with different weights as the only variable factor amongst the different groups.