CPI AND RPI: WHY THE RSS RAISED CONCERNS Jill Leyland Vice President, Royal Statistical Society 18th November 2011.

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Presentation transcript:

CPI AND RPI: WHY THE RSS RAISED CONCERNS Jill Leyland Vice President, Royal Statistical Society 18th November 2011

Measuring inflation often controversial – in any country People have different spending patterns – so different inflation experiences Notice price rises more than price falls Conceptual problems Calculation issues – no single “right” way of compiling index numbers and – different approaches give different results

15 years of the two price indices Source: Office for National Statistics (ONS)

Impact on eg: pensions Suppose two people, A and B, had retired in 1996 on pension of £5,000. A’s pension is uprated annually by CPI, B by RPI In 2001: A gets £5,341; B £5,672 B is 6% better off In 2006: A gets £5,778; B £6,438 B is 11% better off In 2011: A gets £6,778; B £7,680 B is 13% better off

Why the difference The items included in the index How they are calculated – “formula effect” Difference in items included normally makes RPI grow faster than CPI but not always But formula effect always makes RPI grow faster

The impact of the formula effect NB: rough and ready adjustment

Such a difference not acceptable Formula effect (in RSS view) way beyond any methodological justification; now being addressed but needs to be fully investigated and eliminated (or nearly) Coverage of indices should reflect user needs – fundamental principle of good statistics and UKSA code of practice This meeting and formation of user group major step in improving situation

Do we need to have? An index, or family of indices, reflecting typical household budget, or budgets of different household types Would these be new indices or adaptations to RPI or CPI? (NB: UK has to produce a harmonised index on EU definitions; RPI constraint due to index linked gilts issue)

Other issues How to measure owner-occupied housing costs – RPI includes mortgage interest while proposal for CPI either “rental equivalence” or “alternative cost”. Which approaches are better for different purposes? Giving CPAC greater legitimacy Should the CPI be renamed the HICP? Low weighting of insurance in CPI

But.. This meeting is not about RSS views It is about your views