ONS consultation on changes to RPI

[IanXC]

The Office for National Statistics (ONS) has unveiled plans to consult on whether the retail prices index (RPI) should be calculated in the same way as the consumer prices index (CPI) in a move that could have major implications for the £280bn inflation-linked government bond market.

Bringing the two measures of inflation into line would reduce RPI by 0.88 percentage points. According to official estimates, the change would lower government borrowing costs by almost £3bn next year and by up to £6bn in 2016 – helping the Chancellor to cut the bloated budget deficit.

The plan would also deliver savings on a raft of prices linked to RPI, from wage settlements to train fares, water bills and taxes on beer and cigarettes.

http://www.telegraph.co.uk/finance/...lation-change-could-deliver-3bn-windfall.html

It seems that the current formula for calculating the Retail Prices Index results in the figure calculated being 0.88% higher than it would otherwise be if it were calculated using the same method as the Consumer Prices Index.

There'll be winners and loosers all around with this, generally inflation linked incomes will go up more slowly, but inflation linked prices, such as rail fares, will also rise more slowly.

 

[tbtc]

Seems an economic fudge to me. There's RPI and there's CPI and they both measure things worth measuring (inflation with/without housing costs).

Calculating RPI in the same way as CPI doesn't really make sense - it's a bit like making centimetres and inches the same length - the two measures are useful for different things. Measuring RPI in the same way as CPI would just make it CPI!

 

[SS4]

Seems an economic fudge to me. There's RPI and there's CPI and they both measure things worth measuring (inflation with/without housing costs).

Calculating RPI in the same way as CPI doesn't really make sense - it's a bit like making centimetres and inches the same length - the two measures are useful for different things. Measuring RPI in the same way as CPI would just make it CPI!

Inches have uses? I suppose it's backwards compatibility.

Definitely a fudge though although wouldn't surprise me if it was another right wing trick to hurt the poorest in society (benefits and pensions are linked to inflation)

 

[tbtc]

Inches have uses? I suppose it's backwards compatibility.

Definitely a fudge though although wouldn't surprise me if it was another right wing trick to hurt the poorest in society (benefits and pensions are linked to inflation)

Just the first thing I could think of that was "similar, but different".

For me, there's a need for both measures. For example, pensioners don't tend to have big housing costs (since they've generally paid off mortgages, they get rebates on council tax etc)...

...so I can see why the Government decided that pensions should be increased by CPI (which doesn't include housing inflation) instead of RPI (which does include housing inflation).

However benefits for people of working age really ought to be based on RPI (since people of working age tend to spend a large part of their money on rent/ mortgage/ council tax - which are all included in RPI calculations).

If the Government think that this sleight of hand will somehow dupe the markets into accepting a lower borrowing rate... they seem a little naive to me! (to be polite)

 

[IanXC]

Seems an economic fudge to me. There's RPI and there's CPI and they both measure things worth measuring (inflation with/without housing costs).

The proposal doesn't seek to change what is included and measured in each index.

Its about changing the way the index is calculated. For those of you with a statistical mind there's a thorough explanation on the ONS website (I'll add a link when I get home), but its akin to the difference between an average being calculated as a median or a mode.

International comparisions are made more difficult by this because our RPI figures will always be 0.88% higher than everyone else - as we don't use the internationally accepted method.