A different take on Inflation!
19/03/2024

It seems economists, the Government, and the Bank of England, amongst others, are somewhat interested in the inflation figure for February (figures due to be released Wednesday 20 March). It’s viewed as a critical figure as it is likely to influence the interest rate the Bank will set – which in turn affects many people’s mortgages.
The problem is that these eminent bodies continue to make the mistake of comparing one spot result against another. “It was 4.0% in December, and we forecast a slight rise to 4.1% in January”, was the consensus. What they fail to realise is that the reality is each of these individual results was / will be an accident.
It’s a highly VUCA (Volatile, Uncertain, Complex and Ambiguous) world, and that is especially true for the economy. Therefore a more useful way to look at and respond to inflation would be to use a proven statistical technique to assist in better understanding and thus predicting inflation figures.
We’ve applied our advanced SPC-technique to the monthly UK inflation figures back to January 1989, as shown in the chart below.
The actual results so far are plotted in blue (there are some red and green results in the past where there were sudden, unpredictable changes), the upper and lower red lines are guidelines to a likely performance corridor, and the green line is the likely average over time. You can see that there are discontinuities in the performance corridor, the last one being around the beginning of 2023, where sudden changes in the results bring in a new performance regime. Up to the end of 2022, you can see inflation was on the rise – since then it’s on the decline.
By projecting the performance corridor forwards, the chart above is suggesting that February 2024’s result is likely to be around 3.6%+1.7%. Or to put it another way, it’s most likely to be around 3.6%, and is less and less likely to be a result as you get closer and closer to the upper (1.7% above the average line) or lower (1.7% below the average line) red guideline. And it’s highly unlikely to be a result outside the performance corridor (red or green x) – unless something unusual happens.
So roll on 20 March – not quite the Ides of March, but still close enough for something unusual to happen!
Categories & Tags:
Leave a comment on this post:
You might also like…
A beginner’s guide to sourcing a company beta
Beta is the measurement of a company’s common stock price volatility relative to the market. If you’re trying to find a current beta for a company there are a number of places to look. These ...
Credibility, confidence and collaborative focus: The impact of studying for a sustainability apprenticeship at Cranfield
For participants on Cranfield’s Sustainability Business Specialist Apprenticeship, it doesn’t take long for their studies to start to have an impact, with that impact ranging from personal growth and career progression, to organisational effect ...
Meet Mendeley: a powerful referencing tool that does the hard work for you!
Are you looking for a way to manage your references, create in-text citations and reference lists for your assignments or thesis? If so, you may wish to consider using Mendeley. What is it? Mendeley is ...
Adding documents to your Mendeley account
To make the most of a Mendeley account, it is useful to create and maintain a ‘Library’ of references. You can add references and documents to this Library in a number of ways: 1) Drag ...
Choosing the right reference management tool for you…
Are you thinking about using reference management software to help you manage your references? The Library is here to help you. While Mendeley has been our go-to reference management software for some years, we've recently ...
Cranfield Seed Fund recipient, Cosysense, are using AI to solve air conditioning problems and provide a net zero alternative
If you’ve ever worked in an office environment you’ve probably been involved in, or overheard, a conversation about the air conditioning. Well, it’s no surprise it’s a common complaint when research shows that up ...