Muted price effect understates impact of tax hike

At first glance, the impact of this month’s sales tax hike on inflation and so on real incomes will be small. Headline inflation will probably rise by only 0.4%-point in October. But that’s partly because the impact will be offset by the government’s introduction of cheaper childcare. That’s helpful for many families, but for most households, the tax hike will still reduce their disposable income significantly.