Hits the nail on the head about the figures quoted by politicians and the ones I actually live with. http://www.bbc.co.uk/blogs/thereporters/robertpeston/ Letter to the governor This is an open letter to the governor of the Bank of England and to the chancellor of the exchequer from Mr Two-Point-Two, a thirty-four-year old school teacher from Anytown, UK. Dear governor, dear chancellor, I've read the letters you've sent to each other explaining why inflation is above target and why it's so important that it should be returned to 2% without undue delay. It occurred to me that it might be useful for you to know that I don't recognise the economy you describe, even though I am supposed to live in it. You could be referring to economic conditions on Mars, not the financial pressures facing our family. The thrust of your letters appears to be that salaries and wages must, under no circumstances, rise to compensate for the squeeze in living standards precipitated by the recent jumps in fuel, power and food prices. There's a threat from the governor that he will increase interest rates if there are signs that earnings are on the rise. As I understand it, he wants to prevent the increases in fuel, power and food costs feeding through into more generalised price rises, or what economists would call second round inflationary effects. Mr King is implying that families like mine should grin and bear a fall in our living standards, as a price worth paying for seeing the rate of increase in the consumer price index fall back to its target. The chancellor plainly agrees with him. But I fear that neither of you can understand quite how much we're being squeezed. If you did, I am sure you would not ask us to make this sacrifice in quite such a matter-of-fact way. You say that inflation is currently 3.3% and you imply that's a terrible thing. If only you knew! The cost of living has been rising much faster than that in our household. As a young family with children, our main outgoings are: 1) food - up by 8% over the past year 2) energy - up 10% 3) petrol - up one-fifth And that's not all. We bought our first house 18 months ago. Our two-year fixed rate mortgage is coming to an end and - from what I can gather - our repayments are likely to rise by more than 25%. For the past year, we have just about been making ends meet, because my wife works part time in a local shop. But its owners are facing a double squeeze from falling sales and an increase in the cost of credit - and she's been warned that they may not be able to keep her on much longer. To cut a long story short, we are extremely anxious about the future. And it's not just our spending power that seems to be shrinking before our eyes. All our savings were tied up in our house - and the recent fall in house prices has almost wiped out what little wealth we had. Also, at the risk of appearing mean-spirited, I can't help but notice that the impact of these economic difficulties seems very unevenly shared. I am not going to repeat the bloomin' obvious about all those millions earned by supposedly brilliant bankers in the City - whom, it turns out, were in part responsible for the credit-crunch part of the mess. Instead I am going to point out that the brunt of the economic storm is being born by those of us trying to make our way in the world, while the older generation seems more sheltered. Take my parents. Their pensions are protected against inflation, they have paid off their mortgages, they rarely use their car and they have cash on deposit in the bank. So they are feeling pretty content. I shudder to say it doesn't seem fair or right, but... Right now I haven't got the time to work out who to blame for what's gone wrong. But before the next election, I intend to find the time. Yours sincerely, Peter Two-Point-Two UPDATE 16:55 PS I know my parents are thoroughly deserving of financial security in their latter years. But the rapid inflation of the 1970s and 1980s wasn't so terrible for them in one very important way. It meant that the value of their mortgage shrank and shrank and shrank relative to their earnings, which rose and rose and rose. Or to put it another way, inflation massively reduced the burden of their debts. By painful contrast, at a time when the imperative is to kill inflation, I fear that our mortgage will be a millstone around our necks till we peg out.