The ONS needs to have a better understanding of the needs of all users of the CPI and RPI, not just those who use it for macroeconomic purposes. To facilitate this, a broadly-based user group should be established. The ONS has agreed to this and is keen to have it set up. We are aiming to have an initial meeting in late Autumn.
Based on this better understanding of user needs, an index, or family of indices, should be established which reflects the household budget (a cost of living index in the broad sense); a family of indices would enable the experience of different population groups to be reflected (as seems needed within the limits of practicality). Partly in response to UKSA requirements, the ONS is preparing an article on the CPI and RPI. Among other topics it will look at the issues which need to be addressed if a “cost of living index” were to be compiled.
The calculation procedure at the first stage of aggregation needs to be fully reviewed by the ONS, drawing on the body of international research and the insights that can be provided by relevant outside experts. This could include tapping into major retailers’ knowledge of consumer behaviour. The aim would be to develop calculation procedures for different items that are most statistically appropriate, with particular attention paid to reflecting consumer behaviour as closely as possible, and which are coupled with appropriate price collection methods. The results need to be incorporated into the new index. The ONS is now actively examining this issue, initially for clothing. The RSS welcomes this and the fact that some RSS members will be involved.
The RPI would need to be improved in line with the two preceding points subject to the constraints of the index-linked bond issue.
- The CPI will need to be calculated and published in line with EU requirements but consideration should be given to calling it again the Harmonised Index of Consumer Prices, in line with the practice of other major EU members, to avoid the current confusion.
- The full correspondence can be seen at http://www.statisticsauthority.gov.uk/reports—correspondence/correspondence/index.html. See letters between Sir Michael Scholar and Professor David Hand of August, October and December 2010 and letters between Sir Michael Scholar and Jill Leyland of February and April 2011.
- April 1996 to April 2011.
- See in particular Ward et al, 2011, and Courtney, 2011
- See Fenwick, 1999
- The 2007 Statistics and Registration Service Act obliges the UKSA to carry out periodic assessments of all national statistics against the Code of Practice.
- The original index was compiled during the first world war and was designed as a compensation index to help protect ordinary workers from the rapid price increases experienced at that time.
- The New Inflation Target: the Statistical Perspective, Office for National Statistics, December 2003
- The impact of choice of base month and other factors on the relative performance of
- different formulae used for aggregation of Consumer Price Index data at an elementary
- aggregate level, David Fenwick, 1999
- Consumer Prices Advisory Committee, 2010 Annual Report to the UK Statistics Authority, 2010
- How Relevant are the United Kingdom’s Official Measures of Price Change? Michael Ward, Derek Blades and Carol Carson, in Statistical Journal of the IAOS, Vol 27 (2011) p.31-37
- CPI and RPI Differences: The Formula Effect and the Identification Problem, Mark M Courtney (Forthcoming, available on request)
- CPI and RPI: increased impact of the formula effect in 2010, Office for National Statistics, Information Note, 2011 http://www.statistics.gov.uk/downloads/theme_economy/info-note-cpiandrpi-impact-formula-effect2010.pdf
- Consumer Price Indices, Technical Manual, 2010 Edition, Office for National Statistics
- Consumer Price Index Manual: Theory and Practice. Published in 2004 by: International Labour Organization/International Monetary Fund/Organisation for Economic Co-operation and Development/ Statistical Office of the European Communities/United Nations/The International Bank for Reconstruction and Development/ The World Bank
- The measurement of consumer price inflation is highly complex. The Ottawa Group is an international forum, meeting every two years, for specialists in the subject to share views and exchange experiences. Papers presented at the forum’s meetings can be accessed via its website www.ottawagroup.org