No…. not more about inflation!

Another month, another inflation figure release and another bit of adding-upsey maths. If I’ve got it wrong, please correct me.

The BBC states:

From January 2007 to January 2011, the RPI went up by 15%, according to the Office for National Statistics (ONS).

Wages though, as measured by average weekly earnings, rose by just 7.6%

So, on average, the earning power of people in work fell by 7.4% in that time, the ONS said.

Now, I take that last paragraph to mean that if I could afford on my annual salary to buy 1000 oranges in January 2007, I would be able to
afford 926 oranges in January 2011 – 7.4% of 1000 being 74 oranges.

But this can’t be right. Let’s work it through:

If my annual salary in 2007 was £100 (not far off, as it happens!) and oranges cost £1, in January 2007 I could buy 100 oranges.

Given 15% price inflation, in 2011, oranges would cost £1.15 and 7.6% wage inflation would put my salary at £107.6.

Now I can afford 107.6/1.15 oranges or ~93.6 oranges. That’s a drop in my spending power of 6.4%.

It’s a quibble, and the thrust of the article remains.

But I’d have a bit more confidence in it if the maths added up. One of those figures, I think, must be wrong.