RPICPI User Group

last person joined: one month ago 

To foster co-operation and the exchange of information between the ONS, its advisory bodies and other users. Please see 'Aims of the RPI/CPI User Group' in the library for further details.

Household Cost Indices/Household Inflation Indices

  • 1.  Household Cost Indices/Household Inflation Indices

    Posted 18-12-2017 16:53
    Dear all,

    Most of you will be aware that the Household Costs Indices (HCI) will be published in an experimental release by ONS tomorrow, 19 December. Many of you on SUN have supported the development of this - which we originally named the Household Inflation Index. We are writing to tell you how much we have appreciated your encouragement and help in this important project over the last couple of years. We are sure that your support helped to convince the ONS of the potential value of the HII/HCI; and the speed of its construction has, as a result, been rapid.

    We are most grateful to ONS, and in particular Helen Sands and her colleagues, for their careful and detailed work in producing the HCI and its household sub-indices. There is still more work to be done in some important areas, and ONS will be giving this priority again in 2018. We hope you will also continue to give it all the support you can.

    We are approaching a crossroads for inflation measurement in the UK. RPI has long been de-designated as a National Statistic, and by early 2019 it seems unlikely that the government will wish to continue having the CPI/HICP as the Bank of England's target indicator, given that the UK, post-Brexit, will no longer have any influence over its construction. Whatever the situation may be at that stage, there will still be a gap to be filled by an index aimed at measuring inflation as experienced by households. By then, we may hope that most elements of the HCI will be in place.

    John Astin and Jill Leyland


  • 2.  RE: Household Cost Indices/Household Inflation Indices

    Posted 19-12-2017 09:33
    Edited by Helen Sands 19-12-2017 10:03
    Dear all,

    Following on from Jill's message, today we have published our first preliminary estimates for the Household Costs Indices (HCIs). The preliminary estimates paper shows how prices and costs are changing for different household types. Initially, this includes different household income groups, retired and non-retired households and those households with and without children. An all-households index is provided for comparison.


    This release is supported by our methodology article detailing how the new HCIs have been calculated and showing how the all-households index contrasts with the all-households CPIH.

    Users are invited to comment on future priorities regarding the HCIs. An optional questionnaire is provided in Annex A of the methodology article. Any feedback should be sent to cpi@ons.gsi.gov.uk by Friday 23 February 2018.

    We take this opportunity to thank you all for your continued support. In particular we are grateful to John Astin and Jill Leyland for their continued support and contributions to the development of this work. 

    Kind regards,

    Helen



    ------------------------------
    Helen Sands (Prices Division, ONS)
    ------------------------------



  • 3.  RE: Household Cost Indices/Household Inflation Indices

    Posted 19-12-2017 13:18
    I think this shows that over a ten year period there is very little difference in inflation for different household groups.   There is a range from 2.2% to 2.6% with an average of 2.4%.

    Poorer households, retired households and those without children have fared worst.

    The differences are small (possibly within rounding error or other statistical errors)  and I doubt that any government will want to take much account of them.

    GJ.


  • 4.  RE: Household Cost Indices/Household Inflation Indices

    Posted 30-01-2018 15:06
    Dear All,

    The User Group will hold its next public meeting on 22 February 2018 (3.30 to 5 pm).  It is free to attend, but please register at - https://www.eventbrite.co.uk/e/rpi-cpi-user-group-meeting-introducing-the-household-cost-indices-tickets-42528949232

    RPI CPI User Group meeting: Introducing the Household Cost Indices

    DESCRIPTION

    Introducing the Household Cost Indices, 22 February 2018 (3.30 to 5 pm)

    The user group has long been calling for a measure of inflation that better captures households true expenditures, that it believes could be used for uprating pay and benefits.

    ONS recently published its first estimates of Household Costs indices, which aim to capture households experience of changing prices and costs. The paper is on the ONS website at:

    www.ons.gov.uk/economy/inflationandpriceindices/bulletins/householdcostsindices/preliminaryestimates2005to2017

    The RPI CPI User Group is therefore hosting a public meeting to discuss the new indices and look to provide feedback to the ONS on user views .The meeting would include:

    • A presentation by the ONS on the indices
    • A response from Jill Leyland
    • A question and answer session.

    The meetingwill be held at the Royal Statistical Society offices (the nearest Tube stations are Moorgate, Barbican and Liverpool Street). Please pre-register if you plan to attend the meeting.

    For those who may not be able to attend or would like to submit a question in advance please email rpicpiusergroup@gmail.com with the comments you would wish us to raise.

    The meeting is open to all so please circulate to all interested parties/organisations.

    RPI CPI User Group Committee

    • The nearest Tube stations to Errol Street are Moorgate, Barbican and Liverpool Street.


    ------------------------------
    Tony Cox
    chair, RPI CPI User Group
    ------------------------------



  • 5.  RE: Household Cost Indices/Household Inflation Indices

    Posted 02-02-2018 15:06
    What I would like to see in the work of this group is the addressing of priorities.

    The biggest priority is the formula effect, followed by the treatment of OOH costs.

    These are the two main differences between the RPI and the CPI.

    Everything else seems of minor importance to me.

    GJ


  • 6.  RE: Household Cost Indices/Household Inflation Indices

    Posted 05-02-2018 10:27
    Personally I cannot see how anything other than re-opening the Housing issue could be the priority.

    Housing should be the biggest element in the main indices, and if it is wrong then I cannot think of how you can have a bigger problem with the indices.


    ------------------------------
    AL

    how the US CPI actually worked to contain housing inflation

    http://www.localisewestmidlands.org.uk/2012/housing-reflation-and-housing-inflation-alternative-inflation/
    ------------------------------



  • 7.  RE: Household Cost Indices/Household Inflation Indices

    Posted 05-02-2018 15:03
    Housing costs are not the biggest issue.  It is the formula effect which accounts for nearly all the difference between RPI and CPI.

    GJ


  • 8.  RE: Household Cost Indices/Household Inflation Indices

    Posted 18-02-2018 16:38
    • REMINDER

      RPI CPI User Group meeting:

      Measuring household inflation in the UK: Introducing the Household Cost Indices

      This is a reminder for the meeting this Thursday.  If you haven't already registered please do so at -  To register for 22 February

      Please note the ONS paper that we will be discussing has requested replies by 23 February - details can be found in Annex A of the ONS paper, to which there is a link below.  (If you are unable to reply by that date we hope the ONS might still be able to take account of later responses.)

      Finally for those who may not be able to attend or would like to submit a question in advance please email rpicpiusergroup@gmail.com with the comments you would wish us to raise.

      Additional details below -

      DESCRIPTION

      Introducing the Household Cost Indices, 22 February 2018 (3.30 to 5 pm)

      The user group has long been calling for a measure of inflation that better captures households true expenditures, that it believes could be used for uprating pay and benefits.

      ONS recently published its first estimates of Household Costs indices, which aim to capture households experience of changing prices and costs. The paper is on the ONS website at:

      www.ons.gov.uk/economy/inflationandpriceindices/bulletins/householdcostsindices/preliminaryestimates2005to2017

      The RPI CPI User Group is therefore hosting a public meeting to discuss the new indices and look to provide feedback to the ONS on user views .The meeting would include:

      • A presentation by the ONS on the indices
      • A response from Jill Leyland
      • A question and answer session.

      The meetingwill be held at the Royal Statistical Society offices (the nearest Tube stations are Moorgate, Barbican and Liverpool Street). Please pre-register if you plan to attend the meeting.

      For those who may not be able to attend or would like to submit a question in advance please email rpicpiusergroup@gmail.com with the comments you would wish us to raise.

      The meeting is open to all so please circulate to all interested parties/organisations.

      RPI CPI User Group Committee

      • The nearest Tube stations to Errol Street are Moorgate, Barbican and Liverpool Street.


      ------------------------------
      Tony Cox
      chair, RPI CPI User Group
      ------------------------------

       Original Message





    ------------------------------
    Tony Cox
    chair, RPI CPI User Group
    ------------------------------



  • 9.  RE: Household Cost Indices/Household Inflation Indices

    Posted 21-02-2018 12:39
    I think it is quite unreasonable for ONS to require responses by 23rd Feb, when the seminar is only on 22nd Feb.  I will barely be back home by 23rd.

    ONS should issue a formal consultation on this matter, which would normally weeks if not months for a reply.

    GJ


  • 10.  RE: Household Cost Indices/Household Inflation Indices

    Posted 21-02-2018 13:17
    Dear Gareth et al.,

    Thank you for raising this, following a formal request from the RPI/CPI user group we have agreed to extend the deadline for feedback to Friday 16 March (8 weeks following our initial publication).

    The feedback received on, or prior to, this date will be collated and used to help prioritise our future work plan with regards to development of the Household Costs Indices.

    However, we continue to welcome feedback at any point throughout the development of the indices and would like to work closely with all our users to ensure we continue to develop the indices with user needs in mind.

    Kind regards,
    Helen


    ------------------------------
    Helen Sands (Prices Division, ONS)
    ------------------------------



  • 11.  RE: Household Cost Indices/Household Inflation Indices

    Posted 23-02-2018 12:17
    Having attended the meeting on 22nd Feb 2018, I was most concerned about the attitude to the formula effect taken by ONS and some others.

    ONS has never produced a document justifying their choice of the Jevons (geometric mean) formula at the elementary aggregate level.  I think it is time that they did so, and also sought consultation on their proposal.

    At the meeting, the issue of product substitution was raised again.  I thought that ONS had accepted several years ago that this was not a justification for using the Jevons formula.  I showed mathematically about 5 years ago that the Jevons formula did not imply substitution to cheaper brands, but actually implied substitution to  brands with the lowest price rise (in percentage terms).  This  implies that people will substitute a more expensive product for a cheaper one so long as the rate of price rise is less for the more expensive product.  This is obviously rubbish.

    For example, suppose product B is double the price of product A.  If product B rises in price by 2% and Product A by 5%, then product A is still the cheaper option, but the Jevons formula implies that people will switch to product B which will cost them more.  This is obviously rubbish .

    I think it should be a high priority for ONS to produce a consultation document on the formula effect.  Instead of doing so they have put resources into CPIH and the HCIs.  Let's get our priorities right and test the ONS assumption in favour of the Jevons formula.

    GJ







  • 12.  RE: Household Cost Indices/Household Inflation Indices

    Posted 23-02-2018 16:20
    22 February 2018 Public meeting

    Measuring household inflation in the UK: Introducing the Household Cost Indices


    Please find attached the slide packs used in the presentations at this meeting

    1.  ONS HCIs presentation

    2.  Jill Leyland HCI presentation

    We hope a future posting might include a brief summary of the points raised in the Q&A, but in the meantime we welcome comments from participants.

    Please don't forget to respond to the questionnaire contained in the ONS document posted on 19 December and available here - https://www.ons.gov.uk/economy/inflationandpriceindices/methodologies/householdcostsindicesmethodology .  The ONS has extended the requested date for responses from 23 February to 16 March.


    ------------------------------
    Tony Cox
    chair, RPI CPI User Group
    ------------------------------

    Attachment(s)



  • 13.  RE: Household Cost Indices/Household Inflation Indices

    Posted 19-03-2018 11:10
      |   view attached

    Helen Sands deserves congratulations for putting together the first version of the HCI but arguably there remains a considerable amount of work to be done.

     

    I attach my completed questionnaire to the Household Costs Indices: methodology Annex A: Questionnaire.  There is little that is new and the response is largely a reminder of points contributors to SUN have made in the past.  The response is 5 or so pages long a large part of which are extracts from various documents to support the points made.

     

    In summary the 4 points are –

     

    1. There needs to be an agreed consensus on the definition/description of what the HCI is intended to measure. Without that it is not really possible to agree potential conclusions about the methodological differences between a macroeconomic index and a household index.  This inhibits discussion of the design of the HCI.
    2. There needs to be a discussion of the reasons for the inclusion or exclusion of the different elementary aggregate formulae within the HCI – see note below. To facilitate this discussion ONS needs to provide detail of its position on this subject specifically focussing on the HCI.  Simply stating "international best practice" or similarly frequently quoted misconceptions or factual errors like those presented in the recent RPI article is not sufficient.  Extracts from EU regulation and the ILO manual are given to counter such a simple statement on international best practice. 
    3. There needs to be a discussion of the conceptual basis for quality adjustment in a household index compared to one based on National Accounts principles. To facilitate this discussion ONS needs to set out its thinking on the subject.  Extracts from the Johnson Report are provided which illustrate some of the practical issues related to quality change that ONS need to address.
    4. Statistics is a scientific discipline and empirical evidence is needed to support the theoretical assumptions that underpin the HCI. A definition/description – see point 1 above – is needed to make substantive progress.  A household index unlike an index based on National Accounts principles is not simply a theoretical construct and as such is open to empirical assessment of how well it meets its purpose.

     

    Note: the recent ONS article – "Shortcomings of the Retail Prices Index as a measure of inflation" – which in parts is selective and factually incorrect has raised potential issues with the methodologies that ONS may allow for the development of the HCI.  It is to be hoped that the following statement by the National Statistician in the forward indicates that the development of the HCI will not be restricted by the at best questionable views set out in the above article –

     

    "The course on which ONS has embarked has therefore been two-fold:

     

    • developing a set of measures that better captures the changing prices and costs faced by consumers and households; that approach, encompassing measures such as the Consumer Prices Index including owner occupiers' housing costs (CPIH) and the Household Costs Indices, is set out in a separate article
    • discouraging the use of RPI, while recognising the legacy needs"

     

    All the best.

     

    Arthur




  • 14.  RE: Household Cost Indices/Household Inflation Indices

    Posted 23-02-2018 10:05

    Interesting presentations and discussion on the HCI yesterday.

     

    However, there does seem to be a need to clear up a couple of potential misunderstandings.

     

    First, EU regulations do not ban Carli but specifically allow it to be used for the HICP under certain restrictive criteria – see extract from the regulations below.

     

    Second, the ILO Manual also allows Carli – see extract below.

     

    Finally, chain drift is not a consequence of the choice of elementary aggregate formulae like Carli but of the choice of chain linking algorithm.  See SUN post below and its associated thread – 

    http://www.statsusernet.org.uk/communities/community-home/digestviewer/viewthread?MessageKey=1c390d2c-48b4-49fc-a329-6ad3e86228ba&CommunityKey=3fb113ec-7c7f-424c-aad9-ae72f0a40f65&tab=digestviewer#bm1c390d2c-48b4-49fc-a329-6ad3e86228ba

     

    All the best.

     

    Arthur

     

    COMMISSION REGULATION (EC) No 1749/96 of 9 September 1996 on initial implementing measures for Council Regulation (EC) No 2494/95 concerning harmonized indices of consumer prices

    http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:31996R1749&qid=1417519767970

     

    Article 7

     

    Price indices for elementary aggregates

    HICPs shall be compiled using either of the two formulae given in paragraph 1 of Annex II to this Regulation or an alternative comparable formula which does not result in an index which differs systematically from an index compiled by either of the given formulae by more than one tenth of one percentage point on average over one year against the previous year.

     

    ANNEX II

     

    Formulae to be used in compiling elementary aggregates

    1. When compiling price indices for elementary aggregates either the ratio of arithmetic mean prices >REFERENCE TO A GRAPHIC> or the ratio of geometric mean prices >REFERENCE TO A GRAPHIC>, where pt is the current price, pb the reference price and n the number of such prices in the elementary aggregate, shall be used. An alternative formula may be used provided that it fulfils the comparability requirement laid down in Article 7.

     

    1. The arithmetic mean of price relatives >REFERENCE TO A GRAPHIC> should not normally be used, as it will in many circumstances result in failure to meet the comparability requirement. It may be used exceptionally where it can be shown not to fail the comparability requirement.

     

    Extract from Consumer price index manual – ILO 2004 (wcms_331153.pdf ) page 159, see final sentence in italics.

    http://www.ilo.org/wcmsp5/groups/public/---dgreports/---stat/documents/presentation/wcms_331153.pdf

     

    Chain versus direct indices for elementary aggregates

    9.42  When a replacement item has to be included in a direct index, it will often be necessary to estimate the price of the new item in the price reference period, which may be some time in the past. The same happens if, as a result of an update of the sample, new items have to be linked into the index. Assuming that no information exists on the price of the replacement item in the price reference period, it will be necessary to estimate it using price ratios calculated for the items that remain in the elementary aggregate, a subset of these items or some other indicator. However, the direct approach should only be used for a limited period of time. Otherwise, most of the reference prices would end up being imputed, which would be an undesirable outcome. This effectively rules out the use of the Carli index over a long period of time, as the Carli can only be used in its direct form anyway, being unacceptable when chained. This implies that, in practice, the direct Carli may be used only if the overall index is chain linked annually, or at intervals of two or three years.

     

    Note: the qualification "only" in the final sentence in italics above does not hold as the chain linking algorithm can be changed – see final point above.

     

     

     

     

     




  • 15.  RE: Household Cost Indices/Household Inflation Indices

    Posted 24-02-2018 23:03

    Dear Arthur:

    Of course you are right in what you say about the Carli formula. The ILO Manual doesn't forbid its use and, to my mind, is even somewhat unfair in its comments on the rival Jevons formula regarding its alleged sensitivity to outliers. However, it isn't the only international guide out there. The Practical Guide to Producing Consumer Price Indices says that the Carli formula "is positively discouraged as it is particularly associated with some bad characteristics", which is probably going too far.

    The Eurostat guidelines for the use of the Carli formula are unreasonable. The Carli and Jevons indices will differ from each other more the greater the variance of the component price relatives. It doesn't really seem to make sense to allow the use of the Carli in a context of annual chaining where there will be upward chain drift just because the variance of the price relatives is small and so the damage done is small. In a document in our library "Spoken Comments on Peter Levell's paper Is the Carli Index Flawed?" I mentioned where I thought the Carli formula should be legitimate, the most obvious being the one where  pps samplng based on expenditures generated the priced items. In this context, the restriction imposed by Eurostat that the Carli index number couldn't differ greatly from the Jevons would have no merit.

    In the future, the Carli formula could well be used in the HCIs but I doubt it will be used very much. It will be much closer to the RPIJ than the RPI.

    There may be other situations where the use of the Carli formula would be appropriate. Until I started communicating with you and other people in the RPI CPI User Group about it I really didn't think there were any at all. It shows that these exchanges of views are useful in helping us (or me at any rate) change our views for the better.

    Best regards,

    Andrew







  • 16.  RE: Household Cost Indices/Household Inflation Indices

    Posted 25-02-2018 12:53
    Andrew

    Whatever the EU has to say on the HICP (for some reason known as CPI in the UK), the CPIH, HCIs and other indices are not constrained by EU law.  This applies regardless of the result of BREXIT.

    I think first that the CPI should be renamed back to HICP.  Then we could have our own UKCPI which is not subject to EU law and which could be a subset of CPIH, but excluding OOH costs (because CPIH is obviously rubbish in this area).

    I think the UK should be more confident and lead the world rather than follow.  Unfortunately some people are more concerned with their promotions and knighthoods than with doing a good job.

    Gareth



  • 17.  RE: Household Cost Indices/Household Inflation Indices

    Posted 26-02-2018 09:24

    The name CPI was adopted specifically to hide the fact that it was an EU compromise measure rather than a home-grown one.  However, the Government tried to have its cake and eat it.  It argued that because the CPI was an internationally agreed standard, it could not be manipulated to favour the UK Government (the implication of course being that RPI and RPIX could be).  Of course, the switch from RPIX to CPI for inflation targeting, and then the switch from RPI to CPI for uprating (except when it was advantageous to retain RPI, e.g. for student loan repayment), were huge pieces of manipulation.






  • 18.  RE: Household Cost Indices/Household Inflation Indices

    Posted 27-02-2018 04:05

    Dear Michael:

    The HICP was designed as a macroeconomic index for use by a central bank as a target inflation indicator, so in that way it made sense to switch to it from RPIX. The big mistake was to switch before an OOH component based on a net acquisitions approach was added to the HICP. However at the time it seems everyone believed that this would be quickly done. An FT article by Scheherezade Daneshku said that: "Pilot studies completed this year will soon be extended. If they prove successful, the index would be modified to include house prices in 2006." Of course, it didn't happen. In fact I don't think the second round of pilot studies, expanding the number of countries included from five to 12, even started until 2006. One does wonder why Eurostat has proceeded at such a slow pace.

    I agree with Gareth's suggestion to switch the name of the CPI back to the HICP. It also seems obvious now, more than it probably did in 2003, that there are serious defects in the HICP and in the Eurostat proposal for an OOH component, so that the ONS should probably calculate its own macroeconomic index, perhaps called HICP 2.0, which would be a more appropriate target inflation indicator for the Bank of England. One could, and should, continue to calculate an HICP according to Eurostat guidelines for comparability with all the countries to do so.

    It would make more sense to call the HCI, if it were closer to the original proposal for a Household Inflation Index, the UK CPI. It could potentially be the model for CPIs all over the world.

    Best regards,

    Andrew




  • 19.  RE: Household Cost Indices/Household Inflation Indices

    Posted 16-03-2018 09:44
      |   view attached
    Attached are the notes taken of the 22 February 2018 public meeting.  Those present may wish to comment further and/or in more detail.

    ------------------------------
    Tony Cox
    chair, RPI CPI User Group
    ------------------------------

    Attachment(s)