Despite the Credit Crunch, There Are Reasons to Be Cheerful

If you are a woman, drink vodka and don't drive, then you probably don't need to worry too much about inflation.

Although everyone is in a panic about the rising prices of food and petrol, there are plenty of things falling in price – although the tabloid newspapers seem to have forgotten about them.

A delve beneath the headline rise in the CPI measure of inflation in June to 3.8% shows that the vast majority of the jump from 3.3% in May was down to rising food and oil prices. But they also showed, for example, that clothing and footwear prices fell by 7.5% over the past year, their biggest decline in almost six years and driven by huge discounts in women's clothing as desperate retailers attempt to entice women shoppers back into their stores.

And while food price inflation rose to over 10%, its highest since 1989, drink prices had a downward effect on inflation as the prices of spirits, and in particular vodka, fell sharply.

Although petrol prices seem to hit new records almost daily, motoring is getting cheaper in other respects. Secondhand car prices are down nearly 6% from a year ago, their biggest fall for nearly three years. The juiciest falls, however, remain in the area of computers, televisions, digital cameras (which are down more than a fifth on last year) and mobile phones. This explains why the official rate of inflation remains at 3.8% and not as high as some of the figures being bandied about in some parts of the media, which take a basket of about 10 items of food and declare that this represents true inflation, and that official data are wide of the mark.

You can create a basket of the things that are going up in prices, such as food and petrol, and create some scary-looking numbers, but it does not mean that all people ever buy is food and petrol.

It is surely difficult to argue that a basket of 10 items gives a truer picture of inflation than the 6,000-odd items that the Office for National Statistics measures. The point is that everyone has their own rate of inflation, and the ONS measure is an average representing an average basket of goods and services bought by the average person.

Sure, food is a staple and everyone needs it. But many shoppers have managed to hold their personal food price inflation in check by changing supermarkets to German discounters Aldi, Lidl and Netto. Similarly, there is anecdotal evidence that people are driving slower, driving less and sharing rides more, all of which means they are managing to have a lower rate of inflation from petrol prices than they would if they carried on as normal.

Certainly inflation has risen, but many commonly bought items are still falling in price and will continue to do so. And if the oil price bubble bursts any time soon, inflation is going to slow dramatically.