Lowest Disposable Income Since 1921?

I saw this in the Telegraph.

The Centre for Economics and Business Research (CEBR) said soaring inflation coupled with low pay rises means household peacetime disposable income is at its lowest since 1921.

Rising food, clothing and energy prices mean the average British family will have £910 less to spend this year than they did in 2009.

The CEBR calculates that household disposable income will fall by 2pc this year, more than double last year’s fall of 0.8pc and the biggest drop since the savage 1919 to 1921 post-First World War recession.

UK Disposable Income falls to the lowest since 1921 – 11 April 2011

In the first sentence (in bold), they have missed out a crucial word. What they mean to say is that there has been the biggest fall in disposable incomes since 1921. But, this is very different to saying disposable income is at its lowest since 1921. The economy is having difficulties, but we haven’t quite returned to 1921 living standards just yet.

 

wages
Nominal wage growth is slowing. Wages only increasing by 1%

inflation

Inflation is higher than nominal wage growth, therefore real wages are falling.

I mention this because confusing absolute levels and rate of changes is something that will lose A Level students marks. It’s quite a common exam mistake.

Another related issue is understanding rate of change. For example, a fall in the rate of inflation means prices are increasing at a slower rate. NOT – prices are falling.

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