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Inflation Gets Personal

When the Open Banking policy lands (due end of 2017) and 3rd parties enabled to provide financial services on top of traditional banking services, we are going to finally be able to mark the exam paper of the Office of National Statistics (ONS) on inflation.

Inflation (the rate at which prices increase over time, resulting in a fall in the purchasing value of money) is a general rate applied to a group, the UK in the case of the ONS. This is not realistic for everybody in the UK, since we all spend differently and suffer the cost of inflation differently. It is also measured using projected spending figures. We can however expect that with Open Banking in place fintechs will provide ‘Personal Inflation Rates’ based on actual rates with meaning tailored for each of us; so I’m coining the term ‘Pinflation’ today in anticipation.

Bank customers are understandably obsessed with interest rates, both as borrowers and savers but there is far less attention paid to inflation. This is partly due to the poor understanding of this phenomena and that it is unfathomable and in part because the sustained low rate of inflation relative against the second half of the 20th century has numbed us to it. The older generations tend to believe it is dormant and forget it while the younger generations are largely unaware of it having never had cause to learn.

Three things are likely to change this complacency towards inflation by the retail banking customer bases. Firstly, as mentioned, the Open Banking policy means fintechs can lower the barriers for people to access personal inflation rates. Secondly, the discrepancies between national and personal figures will make good articles. Thirdly, the actual national figure can be calculated and compared against the arbitrary basket of goods on which the ONS projects inflation. After the eras of RPI and CPI, we can expect to see an era of Actual National Price Index, and Personal Inflation Rates.

Conspiracists might rub their hands together, pointing out that the ONS’s rst responsibility is to stability, not accuracy, cite politically biased items added or removed from the basket, and suggest that manipulation was obvious in light of reports like 2005 Q1 which summarised that the main in ationary pressure is ‘from fruit, particularly grapes and to a lesser extent strawberries’. However, it is more likely that the ONS is simply complacent owing
to lack of interest in and competition for generating accurate reports.

As we move from an era of projected figures to actual ones, one thing is
for sure, that the Actual National Inflation Rate and the Personal Inflation Rates will not be what we have now.

Place your bets, higher or lower?

By Max Kalis, Independent Innovation & Fintech Consultant

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