1. Shaping the future of consumer price statistics
John Pullinger
National Statistician

2. ‘If the […] economy was quite static, with very few new products introduced, very little quality improvement in existing products, little change in consumers' income, and very small and infrequent changes in the relative prices of goods and services, measuring changes in the cost of living would be conceptually quite easy and its implementation a matter of technical detail ...’
Boskin Commission final report, Toward A More Accurate Measure Of The Cost Of Living (1996)

3. What I want to cover… User needs: the 3 cases History up to this point
CPIH
The new Household Index
RPI: our view and its future
The landscape of measures

4. User needs Economic principles
Approach consistent with economic concepts and approaches
Household experience
Looking at price changes as experienced by households
Ongoing RPI
Existing, long-standing contracts need RPI

5. Before I begin on the substance…
ONS’s role not to prescribe use:
Inflation target
Uprating of payments
Rather to provide a set of measures to meet user need and be of sufficient quality
For others to justify use in e.g. uprating

6. Recent developments Jan ‘13: RPI loses Nat’l Stats badge
May ‘13: Paul Johnson begins review
Jan ‘15: Johnson review published
Late ‘15: Nat. Stat’s consultation on future plans
Mar ‘17: Introduce changes
Nov ‘16: Nat. Stat. statement on future plans
Mar ‘16: Nat. Stat. announces direction of travel

7. CPI and CPIH CPI measures based on economic principles
But CPI lacks key element of consumption – owner-occupiers housing (OOH)
CPIH a more comprehensive measure than CPI as includes OOH
Will include Council Tax from March 2017
Not constrained by international regulations – CPI is same thing as HICP
Not subject to the same legislative constraints as RPI

8. Between Jan ‘15 & Jan ‘17, CPIH 0.3 pp higher than CPI
CPI and CPIH
Between Jan ‘15 & Jan ‘17, CPIH 0.3 pp higher than CPI

9. Different approaches to OOH
Therefore what is the best way of incorporating OOH costs
Method is widely debated
ONS looks at 3 approaches available, measured at 3 different points:
Used - rental equivalence
Paid - payments approach (experimental)
Acquired – net acquisitions (experimental)
CPIH uses rental equivalence: valuing ‘housing services’ according to the cost to rent an equivalent property

10. Why rental equivalence
Payments approach
Consumer prices index aims to measure consumption, and interest payments represent the cost of borrowing money rather than the cost of consumption
Net acquisitions 
Due to the lack of available data, the methodology used does not separate between the land and house price, and therefore there will be some measure of asset price included.
Rental equivalence
Measures the consumption of OOH services from an economic perspective

11. CPIH as National Statistic
Lost designation in 2014: problems with how private rents were used in ‘rental equivalence’
Not just about addressing specific problem - wider requirements to get ‘badge’ back:
Strengthen QA
Better explain methodology
Monitor behaviour of index and in particular compare to other data & methods
Range of material now published

12. Effect of different OOH measures

13. Effect of different OOH measures
Per cent
CPIH
CPI-H (Pay1)
CPI-H (Pay 2)
CPI-H (NA)
2006
2.4
2.5
2.7
2007
2.9
3.4
2008
3.5
2009
2.0
1.0
-0.4
1.5
2010
3.3
3.2
2011
3.9
4.3
4.2
2012
2.6
2.8
2013
2.3
2014
1.4
1.6
2015
0.4
0.0
0.2
Ave. ( )
Ave. ( )
1.3

14. ‘Household’ measure Developing ‘Household Cost Indices’
Asks the question of how households experience change in prices looking at outgoings
Look at payments households are making (rather than other ways of measuring prices)
Households weighted equally rather than weighting by expenditure
Different household types experience of inflation
Work to be done, but aim to have first estimates by end of 2017

15. RPI: our view
“the methods used to produce the RPI are not consistent with internationally recognised best practices” (UK Statistics Authority, March 2013) “the RPI is not a good measure of inflation... I strongly discourage the use of RPI…” (National Statistician, March 2016)

16. Problems with the RPI
Use of the ‘Carli’ formula
Excludes some households (richest households and the poorest-pensioner households)
Housing includes both mortgage interest payments and house prices
Legislation limits the scope of the ONS to develop the RPI

17. But still a need for RPI
Used in many long-standing contracts (e.g. gilts)
Changes governed by ‘fundamental and detrimental’ tests set in law
And therefore we will publish the minimum of RPI-related data necessary
…and undertake routine changes (e.g. basket updates)
…but we will not ‘invest’ in improving it

18. Future landscape CPIH CPI RPI ‘House hold Index’ Economic principles
Most comprehensive measure
CPI
Comparable across EU
Does not include OOH
‘House hold Index’
Experience of inflation
Use and development will depend on final design and properties
RPI
Legacy measure
Use discouraged

19. Questions? ?