FT: New Inflation Measure - The OPI

Generali

Link (only works if you are a member of the Long Room)

Following the success of the gradual move from the retail price index (RPI) to the consumer price index (CPI) as the principal measure of inflation, the Treasury, Office for National Statistic (ONS), and Bank of England are pleased to announce the introduction of the OPI as a new inflation measure.



Background


In December 2003 the inflation target of the Bank of England's monetary policy committee (MPC) was changed from 2.5% on the RPIX measure, to 2% on the CPI measure. Inflation is currently overshooting the MPC target by 1.2%, but this overshoot would be 2.5% on the previous measure.



As part of the emergency budget announced in June 2010, plans were announced to switch public sector pension payouts to CPI from RPI.



Last week, the government announced that it was looking at changing the indexation for some private sector pensions.



OPI

The introduction of the OPI is consistent with the continued focus on cost savings, as well as the ongoing search for both more accurate ways of measuring inflation, and ways to prevent undesirable falls in property prices.



The OPI (full name one-percent price index) will define year over year inflation at 1% to perpetuity. The target of 2% inflation for the MPC will remain, but the OPI rather than CPI will now be the targeted index. The ONS will immediately cease publication of both the CPI and RPI series. In the absence of any other official published inflation measure, both public and private pension schemes will switch immediately to link to the new measure of inflation, and Index Linked Gilts will also use the OPI to calculate inflation adjusted coupon and principal.



It is not believed that there will be a material difference between OPI and either RPI or CPI, say government officials.



Comment


Stephen Penneck, Director General of the ONS: "The move to the OPI and the cessation of measurement and publication of the CPI and RPI will lead to significant efficiencies for the ONS in monitoring inflation."



Mervyn King, Governor of the Bank Of England: "The OPI will provide a less volatile inflation measure for the MPC. It is hoped that this will enable monetary policy to be more consistent without the counterproductive focus on inflation consistently exceeding the target. And finally it will enable us to more easily focus on the important unwritten MPC target of preventing the bursting of a housing bubble at all costs."



George Osborne, Chancellor of the Exchequer: "In times of constrained budgets the OPI will allow us to more effectively manage public sector pension liabilities as well as reducing the amount spent on servicing inflation linked gilts"

In other news, the Vampire Squid has gotten away with metaphorical murder by paying a fine and compensation of $550,000,000 [STRIKE]for deliberately stiching up their own clients[/STRIKE].

Generali

Chaos_A.D. wrote: »

TBH, for the majority of people, the inflation figures, whether RPI, CPI or any other measure bare no resemblance to reality, except when it comes to salary increases, where you get less.

Inflation measures (OPI excepted as it is a constant) are only averages so will never reflect the reality for each individual. For example, generally speaking, inflation rates are higher for old people than younger ones as they:

- tend to consume more labour intensive services and wages tend to rise faster than inflation
- tend to consume more health services, the price of which has been running ahead of inflation as better products are invented

There is a group of economists that feel that for many years inflation has been systematically under estimated. I do not subscribe to it myself but they have some interesting arguments, especially when it comes to some oddities in USA measurement.

worldtraveller

Generali wrote: »

In other news, the Vampire Squid has gotten away with metaphorical murder by paying a fine and compensation of $550,000,000 [STRIKE]for deliberately stiching up their own clients[/STRIKE].

As one analyst stated this morning, "lunch money" to them!

Generali

worldtraveller wrote: »

As one analyst stated this morning, "lunch money" to them!

Once again, Goldmans get away with systematically defrauding their clients. Anyone who does business with them deserves to be robbed.

michaels

Do I spot just a trace of the green eyed monster...If you spend $1bn on something would you not expect to do a little checking in to just what it was you were buying?

RE the original story - I understand this approach has been very successful in Argentina so why not try it here?

Generali wrote: »

Once again, Goldmans get away with systematically defrauding their clients. Anyone who does business with them deserves to be robbed.

purch

If you spend $1bn on something would you not expect to do a little checking in to just what it was you were buying?

As Gordon (the) Gekko said... "due diligence is for Wimps !!!!" :eek:

michaels

The closest to financial work I have done was for an organisation that belatedly discovered it had inadvertently given away a whole bunch of options trying to value and hedge said options - and I guess total value of the unanticipated options might well have been same order of magnitude...

Generali

michaels wrote: »

The closest to financial work I have done was for an organisation that belatedly discovered it had inadvertently given away a whole bunch of options trying to value and hedge said options - and I guess total value of the unanticipated options might well have been same order of magnitude...

Mistakes are easily made. We had someone lose a lot of money at work this week (about 3 years gross wages for me) by selling what they should have bought for an Foreign Exchange trade. That could have been a lot worse too if one of my colleagues hadn't been on the ball.

purch

We had someone lose a lot of money at work this week (about 3 years gross wages for me)

I thought that was the whole point :eek:

Do it first thing, and then you can spend the rest of the day trying to make it back !!!

I knew I was going wrong somewhere