We have now published the minutes and papers of the recent Stakeholder Advisory Panel meeting, which you will find here:
Thank you very much for notification of these documents from the stakeholder committee.
I wished to comment on section 2.4 of the minutes, which reads: "Members of the Stakeholder Panel discussed what the ONS are trying to measure with student loans in the HCIs and discussed the differences between measurement in CPIH. In HCIs a payments approach is taken, so they aim to capture repayments at the time the loan is being paid off. In CPIH an acquisitions approach is used, so the cost of tuition fees is captured at the point that the student loan is acquired." The CPIH is just the UK HICP with imputed rents and council tax components tacked onto it. As John Astin wrote about the design of the HICPs: "we would not include the cost of borrowing money, which is neither a good nor a service. So interest payments were to be excluded." So student loans simply can't exist in the CPI or the CPIH. It would be possible, under an acquisitions approach to account for student loans if one had the downpayment and the discounted value of all future loan payments equaling the tuition fees, but that would not be appropriate for a macroeconomic consumer price series.
Before that in section 2.2 it is great that the Technical Panel is looking at how to measure student loans but why is there no mention anywhere in the minutes of measuring home equity payments? One of the worst things about the move to CPI and CPIH for tasks previously assigned to the RPI was that housing prices weren't in either. The RPIJ would seem to be the logical replacement but Mr. Pullinger decided to stop publishing it because "RPIJ shares RPI's other shortcomings, including using a direct measure of house prices to estimate owner occupiers' housing costs". What appealed to other people apparently offended him. So perhaps from this point of view excluding home equity payments should be considered a plus, not a minus. But what it means is the HCIs take the measurement of homeownership costs back to what was the RPI methodology in 1989 almost thirty years ago, except that it includes surveyors' fees, not included in the RPI till later, and stamp duty, which should have been added to the RPI following the Johnson report, but never was. All in all, it is a step back rather than a step forward, as losing the home depreciation component outweighs getting a component for stamp duty.
Also in section 2.2 one reads: "The APCP-T also discussed that the index was a cost index rather than a price index and that the HCIs should be conceptually consistent." The Household Inflation Index was always meant to be a price index, so if this is how the Technical Panel views its implementation in the HCIs this is really a problem. For a few sectors including tuition fees and owner-occupied housing, the use of a payments approach might take the index away from a traditional price index approach, but that doesn't really make it a cost index. And what does consistency imply? Most goods and services are paid for in installments to some extent. To ignore this in cases where its impact is trivial isn't really being inconsistent: it's just being practical.
Thank you again for the link. Best regards,
On your final point with which I agree –
"The Household Inflation Index was always meant to be a price index, so if this is how the Technical Panel views its implementation in the HCIs this is really a problem."
Logically it is the Stakeholder panel that should be advising on whether the user requirement for the HCI is a price index or a cost index. The Technical panel role should be to advise on how the Stakeholder panel advice is implemented.
As an aside, if the Technical panel is concerned about conceptual consistency then it should look at the CPIH as a price index. The rental equivalence index appears to be a rolling average over about 18 months rather than the rent that would need to be paid by someone newly taking out a contract to rent a property. Hence it is sort of an average cost though we have yet to see a definitive methodology paper from ONS.
So for an owner occupier it is the rent they would have paid probably 9 months previously whereas the actual prices they pay to live in their property are current prices.
If the apparent rental equivalence index logic was applied to cars, say, then because many cars are paid for in instalments the car index would be a price averaged over several years. And taking the logic to the extreme, tins of beans are a store cupboard item so why not average the price over the last few months.
The Technical panel might also consider the possible implications of the government consultation to extend the minimum rental contract period to 3 years.
All the best.