RPICPI User Group

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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.

Changes to CPIH and CPI for 2018

  • 1.  Changes to CPIH and CPI for 2018

    Posted 14-11-2017 15:12

    Dear users,

    From March 2018 we will be implementing improvements to the way we collect prices for fruit and vegetable items, which are considered to be particularly volatile. The change involves using additional price quotes for fruit and vegetable items collected on the Friday preceding index day (the second or third Tuesday of the month). We have today published a paper which sets out the estimated impact of this change, based on a parallel run conducted in 2016 and 2017. Over this period, the impact on headline CPIH annual growth rates is no greater than 0.01 percentage points.

    If you would like to read more about this please refer to the following article:

    https://www.ons.gov.uk/economy/inflationandpriceindices/articles/impactofinclusionofadditionalpricequotesonconsumerpricesindices/2017-11-13

    Kind regards,

    Chris



  • 2.  RE: Changes to CPIH and CPI for 2018

    Posted 15-11-2017 11:13

    Chris,

     

    I see that the paper says that the change to fruit and vegetable collection will not apply to the RPI but no explanation is given for this decision.

     

    Could ONS provide an explanation for that decision?

     

    The National Statistician has said that "The RPI would continue to be maintained through routine changes."  This would appear to be a routine change.

     

    All the best.

     

    Arthur




  • 3.  RE: Changes to CPIH and CPI for 2018

    Posted 16-11-2017 11:48
    Chris

    I had the same thought as Arthur. It seems to me odd that it would not be applied to RPI as well and it is hardly the sort of change that the Bank would consider "fundamental".

    Jill


  • 4.  RE: Changes to CPIH and CPI for 2018

    Posted 16-11-2017 13:01

    Both,

    Thanks for your queries.

    Page 30 of the Consumer Prices Technical Manual states that "The CPI and CPIH are intended to reflect prices over at least one working week at or near the middle of the calendar month of the reference month, whilst the RPI and RPIJ is intended to reflect prices on a particular Tuesday of each month (Index Day)". Therefore, this change is conceptually appropriate for CPIH and CPI, but not for the RPI, which aims to reflect price changes at a particular point in the month. In a similar way we already use a temporal collection for petrol and fuel in the CPIH and CPI, but not in the RPI.

    Best wishes,

    Chris




  • 5.  RE: Changes to CPIH and CPI for 2018

    Posted 22-11-2017 18:10

    Chris,

     

    Apologies for taking so long to respond – we have been away.

     

    I certainly agree that the convention for RPI is a single index day but that convention is not always followed – for example, depreciation is collected based on a smoothed version of the DCLG house price index.  By its nature I wouldn't have thought that this can be described as being based on a single index day.

     

    The depreciation methodology may be contentious but it shows that the RPI single day convention can be relaxed if necessary to provide a better quality price series. 

     

    There is an operational argument for using the new fruit and vegetable collection for all the price indices.  The two series for fruit and vegetables are collected in a similar way with both including the prices collected on the index day unlike petrol.  In the latter case the manual says that the RPI series is collected on index day whereas the CPI series prices are collected on Mondays.  Hence for fruit and vegetables there would appear to be a greater potential for confusion and error. 

     

    Arguably two similar series are best avoided given that the no revision convention now appears to apply to both the RPI and CPI family of indices with the consequent potential for error and ONS embarrassment.

     

    All the best.

     

    Arthur




  • 6.  RE: Changes to CPIH and CPI for 2018

    Posted 04-12-2017 16:08

    Arthur,

    It's not an issue of quality – the RPI is intended to measure the change in price at a particular point in the month, whereas the CPIH and CPI are intended to measure the change in average monthly prices.

    We can't measure house depreciation at a single point in the month. Because we can't measure it directly we have to use a proxy. Generally, where we have deviated from an index day collection, it is because we're unable to measure something on index day. Therefore, I don't think we can use this case to justify including a temporal fruit and vegetable collection in RPI.

    On petrol and fuel, we receive petrol prices for every Monday. The petrol price for RPI is taken as the Monday immediately preceding index day (as some items are collected on the Monday before or Wednesday following index day), whereas the CPI price is the average over the month. This is not dissimilar to the temporal collection for fresh fruit and vegetables.

    Kind regards,

    Chris



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    Arthur,

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  • 7.  RE: Changes to CPIH and CPI for 2018

    Posted 05-12-2017 16:35
    Dear Chris:

    Like Jill, I would also support Arthur in extending the additional pricing of fruit and vegetable items to the RPI. 

    You argue that the pricing frequency of the RPI/RPIJ is a fundamental distinction between it and the CPI/CPIH.  The housing depreciation index, mentioned by Arthur, is an imputed series, the only one that does not represent actual transactions in the RPI. However, this is not the only place where housing prices are used. They are also used in calculating the MIPs (mortgage interest payments) series and the series for estate agents' fees, both of which  represent actual transactions related to housing prices. There is no apology proferred in the Technical Manual for not using housing prices only for the second or third Tuesday of the month in its calculations, nor should there be. This would amount to a massive reduction in price quotes for no obvious benefit.

    This would seem to be another case where the RPI/RPIJ has not undergone the improvements one would expect in an ongoing index in order to encourage users to consider other options. Another would be the exclusion of stamp duty from the RPI although the Paul Johnson report noted that conceptually it seemed that stamp duty should be within scope for the RPI.

    I like to monitor the RPI excluding MIPS excluding council tax series adjusted for the formula effect as an approximation to a monthly consumer price series with an owner-occupied housing series based on the net acquisitions approach. There is only a quarterly OOHPI(NA) series now calculated by the ONS, published with a fair lag. There are also things I don't like about the HICP methodology (the net premiums approach to insurance, where the RPI methodology seems to be better. But this measure loses some of its usefulness if reforms are made to the CPI/CPIH that are not made to the RPI/RPIJ.

    Best regards,

    Andrew





  • 8.  RE: Changes to CPIH and CPI for 2018

    Posted 20-12-2017 14:22

    Andrew,

    Thanks for your post.

    As our article Measuring changing prices and costs for consumers and households makes clear, the RPI only continues to be produced due to its continued use in long-term contracts and index linked gilts. Continuing to measure fruit and vegetable items on a single collection day basis makes it no less suited to this purpose.

    Measuring price changes for fruit and vegetable items is relatively straight forward and price collection can be carried out as part of our wider price collection. Housing items are more complex and, in the case of mortgage interest payments for example, need to be modelled. Therefore these items necessitate the relaxing of the single-collection day convention, whereas for fruit and vegetables and indeed petrol and fuel we do not need to. In these cases we continue to use the RPI principle of measuring the price change at a particular point of the month.

    Kind regards,

    Chris