We have today published a number of articles, which focus on price indices for different subgroups of the population.
CPIH-consistent inflation rate estimates for UK household groups: 2005 to 2017 presents experimental CPIH indices for different subgroups of the population - by income decile, expenditure decile, retired and non-retired households, and households with and without children.
This article is supported by Methodology to calculate CPIH-consistent inflation rates for UK household groups, which describes the underlying methodology.
Tanya Flower has also written a blog for the National Statistical website on the findings.
We have also published Investigating the impact of different weighting methods on CPIH, which explores different approaches to weighting, and is part of the development of both CPIH subgroups and the HCIs.
Finally, we have published Developing the Household Costs Indices (HCIs), which sets out the development work on HCIs to date, and provides useful links for users to any relevant papers.
You may also wish to note that we have made some updates to the CPIH Compendium, to reflect that CPIH is now the lead measure of inflation, and also provide some more detail on section (3)S1.1.2.
It is perhaps unsurprising that CPIH is a lot smoother than CPI because of the way the rental equivalence index is constructed. This is not particularly clear but it would not appear to be based on rents in a single month but a mixture of rents over a period of up to 18 months – so a sort of moving average which would tend to smooth the CPIH series given the rental equivalence index weight.
I won't go over old ground but you might find this post from May useful –
All the best.
The link in my previous post points out that there isn't a single methodology document for the rental equivalence index (IPHRP) so I have checked with ONS on the current position.
I received the following reply –
"We're looking to expand the coverage of IPHRP to include Northern Ireland and are currently evaluating a potential data source for this. Following this evaluation we'll look to re-draft our methodology documentation, hopefully sometime early next year."
An important aspect of regional prices is whether there is variation in the price levels in different regions. Obviously there are large variations in OOH. Thus some sort of PPP is needed as well.
One problem with education is that people may go to university or boarding school a long way from where they normally live, so the actual prices or price changes experienced by people living in a given area may not be well represented by prices in their vicinity.
Clearly this is a challenging area but it is good to see some work being done towards developing regional price indices. Thank you. A small point on the possibility of aggregating over time – this is should clearly be considered but it does reduce the independence of each sample point in the elementary aggregates.
Many members of the RPICPI User Group will be aware that ONS are planning to issue in December the first (experimental) release of the Household Inflation Index – under their own not entirely popular name of Household Costs Indices. See:
Those of us who have been involved with the development of the HII/HCI will be pleased that this important new index has been developed within a very short period of time. The December release will not be comprehensive – there is more work yet to be done – but it is expected to contain most of the essential elements of the 2015 paper "Towards a Household Inflation Index" by Jill Leyland and myself. See:
The timing of this important new release may well be opportune. Today and yesterday, Hetan Shah had letters in the Times and Telegraph arguing against the continued use by the government of the RPI for a range of indexation purposes, despite repeated warnings by UKSA. One can only hope that his advice will be followed. That would leave two consumer price indices for the press to report on. The one which is most widely quoted is the CPI (which is the UK's HICP - the EU's harmonised macroeconomic index of inflation). How long this can continue I don't know: after Brexit it would seem odd to have the construction of the UK's main index beyond the control or oversight of the UK, as it currently is. The second current headline index is CPIH, which the press by and large ignores – although it may eventually replace CPI as the Bank of England's target measure.
This leaves a gap which can – and should - be filled by the HCI. ONS will be publishing not only the aggregate HCI but also a number of household-type sub-groups, such
This will enable users to easily calculate real (deflated) incomes at a fairly detailed level. This is of course one of the primary uses of a consumer price index - especially one that has been designed specifically with this purpose in mind. Properly handled and advertised, the HCI could achieve rapid recognition by the press and public. To my mind, it would be the natural headline partner to the CPI and/or CPIH – both of which may be seen as "technical" as opposed to "household" indices.
ONS have indicated that there will be a public consultation on the HCI at some stage after first publication. I am submitting this note in the hope that readers who have supported the development of the HCI (or whatever its final name will be) will champion its use in the future.John Astin16.11.17
Thanks for your query.
I am out of the office for the next couple of weeks, but I would be happy to pick up any questions when I return,
Democratic weighting is scarcely a new idea in this country. I discussed it in the original RPI technical manual some 20 years ago.
Thank you for the link. Table 5 of the release compares the US CPI-U, the American headline inflation measure, with the C-CPI-U, or chained CPI, which with the new Us tax reform is now used for upratings of income tax brackets. It had an inflation rate of 2.3% in April, 0.2 percentage points lower than the CPI-U. In general its inflation rate is 0.1 to 0.3 percentage points lower. The use of the Törnqvist formula in the C-CPI-U is contentious; another formula that passed the time reversal test might be better. All the same it does pretty much eliminate upper level substitution bias. The UK consumer price series would be better if they were more like the C-CPI-U.