The government, already taking a battering on all fronts, needed John Major’s remarks like a hole in the head. The former prime minister claimed a few days ago that the official inflation figures were “extremely misleading” and that the true rate was between 8% and 10%.

Major knows a bit about this, having presided over double-figure inflation during his 13 months as chancellor in 1989-90, before his unexpectedly rapid move into 10 Downing Street.

He also knows how corrosive a widespread mistrust of official statistics can be. In the 1980s, after repeated changes to the unemployment figures, Margaret Thatcher’s government found that when the jobless total went down, the public did not believe it.

Gordon Brown now faces similar problems. The official figures are bad enough, showing inflation measured by the consumer prices index (CPI) at 3.8%, with the figure even higher, 4.6%, according to the retail prices index. Neither has been as high since the early 1990s.

The government’s target for the CPI is 2% inflation, so, on the basis of the official numbers, prices are rising nearly twice as rapidly as they should be; they are set to accelerate even further in the coming months. If, however, the statistics are as understated as Major suggested, the target is not only being missed; it is being missed by a country mile. Worse, if workers seek compensation for “true” 8%-10% inflation, Labour will have a 1970s-style wage-price spiral on its hands.

Things are not as bad as in Zimbabwe, where prices are rising at a 9,000,000% hyperinflation rate and a single egg costs 50 billion Zimbabwe dollars, but they are a long way from where they should be. One of Brown’s proudest claims was that, via Bank of England independence, he had controlled inflation. The other, that he had presided over a new prudence in the public finances through his fiscal rules, is also looking decidedly shaky when there are reports, not denied by the Treasury, that those rules are to be rewritten.

So what is the true position? There are two problems. One, directly attributable to Brown, is that five years ago, when he was chancellor, he switched the inflation measure that the Bank is required to meet to the new CPI. The switch was a result of the long battle he had with Tony Blair over whether Britain should join the euro. Brown and his Treasury team came up with a “no” verdict in the summer of 2003 but, as a sop to Downing Street, said Britain would switch the official inflation target to the “harmonised” inflation index used by the European Central Bank. That would make it easier for Britain to join the euro when the time came.

The drawback with the new measure was that it excluded house prices entirely at a time when they were rising strongly. It also left out council tax, another sharply rising burden on household budgets.

The second problem is that price rises in recent months have been concentrated on food and energy – and most of us have an exaggerated idea of how much of our income goes on these “basics”.

Certainly, food and energy prices are rising at a rate that would appear to support Major’s assessment. Over the past 12 months food prices have risen by 10.6%, petrol and diesel by 24% and household fuel bills by 13.8% (including an 87.8% leap in heating oil).

So how, given that all these are straight from the official figures, can overall inflation be only 3.8%?

Rising food and fuel prices cause us a lot of pain but we do not spend as much on them as we think. The proportion – or weighting – of spending on food in the average family’s outgoings, for example, is only 9.5%, according to official statisticians. Domestic fuel bills have a weighting of only 3.5%; petrol and diesel, 3.8%. So the things that are soaring in price constitute, between them, a sixth of the average family’s spending.

The remaining five-sixths mainly consists of things that are rising more modestly: for example, medicines (0.5%), household appliances (1.2%) and personal care, including hairdressing (2%). It also includes items that are falling in price, such as clothing, down 8% over the past year, and shoes, down 4.2%.

According to the surveys on which these weightings are based, we spend almost as much (15.2%) on “recreation and culture”, including everything from computer games to football tickets, as we do on food and energy.

Most people will have difficulty in believing these figures. And they will have particular difficulty when the rise in food and energy prices is forcing them to economise on other spending. Like it or not, we arehaving to spend more on necessities, which is why so many people are suspicious about the official inflation figures.

In fact, government figures do not take into account some of the ways households can economise. “Two for one” and “three for two” offers, for example, now ubiquitous in stores, do not feature in the statisticians’ calculations. Only the selling price of a single item is included. Similarly, if people switch from high-price to lower-priced items, that is not immediately reflected in the figures.

As for Major’s claim, there is a good economic reason that true inflation cannot be 8-10%. If it were, then with average pay growing by less than 4%, the country would now be suffering its biggest consumer recession in history. So far, the evidence is of a squeeze on spending but not a collapse.

That squeeze is consistent with true inflation being something like the 4.6% increase in the retail prices index, which has a pedigree stretching back to the 19th century. It is not consistent with inflation being twice that rate, though that will not stop many people, and some former prime ministers, thinking it is.

David Smith is economics editor of The Sunday Times

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