Inflation: No change to RPI calculation

buffman

The Office for National Statistics has decided that there will be no change to the way the retail prices index is calculated. Good news for holders of National Savings Index Linked Certificates.

cepheus

This was a surprise. The Chancellor would have had to make the call whether to adopt the recommendations, so it has taken pressure off him. With many Pension schemes moving from RPI to CPI it would have been a move too far.

Inflation: No change to RPI calculation

There will be no change, after all, to the way the RPI is calculated.
There will be no change to the way the retail prices index is calculated, the Office for National Statistics (ONS) has decided.
After a three month consultation, the ONS has decided not to bring the RPI more into line with the slower rising consumer prices index (CPI).
Instead, a new additional index of inflation will be created.
However, the RPI will continue to be used for the uprating of private sector pensions and index-linked bonds.
The National Statistician, Jil Matheson, said: "There is significant value to users in maintaining the continuity of the existing RPI's long time series without major change, so that it may continue to be used for long-term indexation and for index-linked gilts and bonds."

http://www.bbc.co.uk/news/business-20959765

StevieJ

Seems like the ONS (and Govt?) got a flea in the ear at the consultations

englisho

Thanks god.. spent the last 24 hours looking at alternatives should it have happened.

fusionblue

I still think inflation should be tied to the things everyone HAS to pay for, rather than a list of things chooses to. E.G council tax, rent, mortgage, drinks (water etc) are all compulsory items

bowlhead99

fusionblue wrote: »

I still think inflation should be tied to the things everyone HAS to pay for, rather than a list of things chooses to. E.G council tax, rent, mortgage, drinks (water etc) are all compulsory items

The 'cost of living' isn't just those essentials though, is it.

If you want to preserve your ability to live as you currently do, you buy a whole basket of things. The price of those things changes and over longer periods the mix will change. In the 70s/80s you might buy LPs, 80s/90s cassettes, 90s/00s CDs, 00s and 10s will be blu-rays and electronic downloads etc. The cost of these and the TVs / walkmans / playstations / ipods to play them make up a part of your cost of living and once you get beyond the poverty line most of your money does not go on bread and water.

If you're assessing for yourself your own personal change in living costs you will get something different because an OAP might not want a Justin Bieber download any more than a 20 year old wants to buy a knitting pattern. So everyone has their own CPI which varies as they go through life and move around the country (in terms of housing costs as a proportion of wages etc).

But there is nothing wrong with taking an average basket of goods and services which goes beyond the essentials and on to how the average pound is actually spent across Britain and using it as a broad indicator of how much the prices of 'things' are changing.

Certainly TVs are going down in price for the same specification while food commodities go up. A family will buy the former every few years and the latter every few days. If they are trying to increase their earnings and invested cash to continue to afford the same stuff in future, they need a measure of what it costs to buy both of these, not just a measure of council tax, tap water and breakfast cereal.

grey_gym_sock

measuring inflation has various different purposes, and it makes sense to have various different measures of inflation.

e.g. if you're measuring inflation in an attempt to preserve the value of benefits paid to ppl on low income, then it would make sense to use a "basket" of things that ppl on low incomes buy. we don't do this, though. both CPI and RPI are broadly aimed at the spending patterns of ppl on average incomes.

again, it might make sense to have a different measure for pensioners. but pensioners are not all the same. for 1 thing, the inflation experienced by pensioners on low or high incomes is likely to be different.

there's no clear answer to what is essential. mortgages? rent? neither is essential, though 1 of them is ... unless you are a mortgage-free homeowner.

shaunrc

StevieJ wrote: »

Seems like the ONS (and Govt?) got a flea in the ear at the consultations

I am one of those who gave them a flea in their ear at the London consultation! If you wish to know why -something missing today from much of the news media including the BBC- I have put a link below which gives my reasons.

http://www.mindfulmoney.co.uk/wp/shaun-richards/victory-on-the-uk-retail-price-index-and-it-feels-good/#disqus_thread

kidmugsy

fusionblue wrote: »

I still think inflation should be tied to the things everyone HAS to pay for, rather than a list of things chooses to. E.G council tax, rent, mortgage, drinks (water etc) are all compulsory items

It would certainly be interesting to see that published alongside RPI and CPI.

jimjames

kidmugsy wrote: »

It would certainly be interesting to see that published alongside RPI and CPI.

You can work out your own personal inflation with the BBC calculator here

http://www.bbc.co.uk/news/business-11331052

xylophone

20 year old wants to buy a knitting pattern.

Why not? Knitting's just another hobby and I imagine there are keen knitters in all age groups....:)