RPI/CPI User Group

last person joined: 2 months 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.

Subject: New Prices Publications

1.  New Prices Publications

Posted 14 days ago
Dear users,

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.

Kind regards,

Chris



2.  RE: New Prices Publications

Posted 14 days ago
I haven't had much time to read these papers yet, but one interesting comparison is with CPI %  annual changes at Sept of each year this being what would nowadays be used for indexation of many things.  The table below shows the comparison:


        Annual % changes
Year    Sept CPI   CPIH

2006       2.4          2.5
2007       1.8          2.4
2008       5.2          3.5
2009       1.1          2.0
2010       3.1          2.5
2011       5.2          3.8
2012       2.2          2.6
2013       2.7          2.3
2014       1.2          1.5
2015      -0.1          0.4
2016       1.0          1.0

Average  2.35        2.2

Clearly CPIH is a lot smoother than the CPI (can't think why).  It is also slightly lower over this period.

GJ


3.  RE: New Prices Publications

Posted 13 days ago

Gareth,

 

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 –

http://www.statsusernet.org.uk/communities/community-home/digestviewer/viewthread?MessageKey=50d5d994-126e-4b3b-b183-7a2c2b5733a5&CommunityKey=3fb113ec-7c7f-424c-aad9-ae72f0a40f65&tab=digestviewer#bm50d5d994-126e-4b3b-b183-7a2c2b5733a5

 

All the best.

 

Arthur




4.  RE: New Prices Publications

Posted 13 days ago
Hi Arthur

The CPI figures are based on a 12 month period.

Also, the weight of OOH costs is not sufficient to account for the difference in volatility.

Gareth


5.  RE: New Prices Publications

Posted 9 days ago

Gareth,

 

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."

 

All the best.

 

Arthur




6.  RE: New Prices Publications

Posted 14 days ago
Regarding different weighting methods:

I much prefer the CPIH (as published) weights to the LCF weights.

The LCF has only a 50% response rate and also it does not cover institutional households, which is a major problem.

LCF shows much greater expenditure on Food and Communication.  CPIH (as published) shows more expenditure on Alcohol, Housing, Health and Restaurants/Hotels.  I think much of this difference is cause by the failure of LCF to cover institutional households and also LCF non-response.  I suspect the Alcohol weight is subject much misreporting.

GJ


7.  RE: New Prices Publications

Posted 12 days ago
Dear users,

Further to my previous message, we have today published the initial findings from research that looks at the feasibility of producing a regional set of consumer price indices (rCPIH) from the current CPIH data set. As you can imagine, there were a number of challenges to overcome in the production of a set rCPIH and the report, at this stage, focuses on the limitations before putting forward some recommendations for improvement. However, the report does provide a solid base with which we can move forward. We welcome any comments you may have on this.

https://www.ons.gov.uk/economy/inflationandpriceindices/methodologies/feasibilitystudyintoproducingcpihconsistentinflationratesforukregions

Kind regards,
Chris




8.  RE: New Prices Publications

Posted 11 days ago

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.






9.  RE: New Prices Publications

Posted 11 days ago
A similar problem applies to place work.  Many people commute between regions, which affects the price of OOH, Transport and other things too.

GJ


10.  RE: New Prices Publications

Posted 11 days ago
And more.

What about holidays taken within the UK which are very common?

This affects things like Hotels & Restaurants, Transport costs, Food, Recreation and culture.

GJ


11.  RE: New Prices Publications

Posted 11 days ago
And even more.

What about second homes used either for commuting or holidays?

GJ


12.  RE: New Prices Publications

Posted 10 days ago
There are some conceptual problems here.

Inflation is the rate of devaluation of a particular currency.

Different territories within the same currency have the same rate of inflation (at least in the long term).

In the short term there may be variations.  But in the long term a territory will tend to break up unless inflation is reasonably equal between its different parts.  If you don't believe this, have a look at the Euro zone (esp. Greece and Spain).

GJ






13.  RE: New Prices Publications

Posted 9 days ago

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.



------------------------------
Ian Pegg

------------------------------



14.  RE: New Prices Publications

Posted 6 days ago

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:

https://www.ons.gov.uk/economy/inflationandpriceindices/articles/developingthehouseholdcostsindiceshcis/2017-11-08

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:

http://www.statsusernet.org.uk/HigherLogic/System/DownloadDocumentFile.ashx?DocumentFileKey=60f4819d-f4ac-4b30-a38e-ff8313651c5a

These include:

  • Mortgage interest payments
  • Interest on certain other loans, including credit cards
  • Household weighting rather than expenditure weighting (or "democratic rather than plutocratic" in the old parlance)
  • National rather than domestic coverage (i.e. excluding the UK expenditure of foreign visitors but including the expenditure abroad of UK residents)
  • Inclusion of Council Tax
  • Inclusion of the full cost of non-life insurance premiums, without accounting for the value of insurance claims received.

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

  • retired households
  • non-retired households
  • households grouped by equivalised disposable income deciles
  • households grouped by equivalised expenditure deciles
  • households with children and without children

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 Astin
16.11.17



------------------------------
John Astin
------------------------------



15.  RE: New Prices Publications

Posted 2 days ago
It will be interesting to see on Wednesday whether the government chooses to continue with CPI indexation or switch to CPIH indexation.  In September, CPIH was at 2.8% whereas CPI was at 3%, so it would save the government money to switch to CPIH.  Then this much ignored index will assume great importance.  This is what happened with the switch from RPI to CPI.

Gj


16.  RE: New Prices Publications

Posted 4 days ago
Tanya Flowers

I don't see how you can have indices representing segments of the population that are based on a plutocratic basket. Although I do think the Poles tried to do it, which might help explain why they have an economy that rather than the future free market eldorado they talked about around 1990, ends up with so many young Poles over here.

Further you say most countries use plutocratic weighting for their CPIs. Could you give us a list of them, or if it is easier a list of those who use a democratic basket system ?

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

how the US CPI actually worked to contain housing inflation

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



17.  RE: New Prices Publications

Posted 2 days ago

Dear Andrew,

Thanks for your query.

We have used plutocratic weighting in this release for consistency with the CPIH. For interest, we have also produced these household groups using democratic weighting.

As far as I am aware, there are no countries that use democratic weighting to produce their equivalent of the CPIH. For reference, some other NSIs have done research to look at the differences, see for example https://www.bls.gov/ore/pdf/ec030070.pdf, and New Zealand use it for their HLCPs. Democratic weighting will be used for the experimental ONS Household Cost Indices (HCIs) publication in December.

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,

Best wishes

Tanya




18.  RE: New Prices Publications

Posted yesterday

Democratic weighting is scarcely a new idea in this country.  I discussed it in the original RPI technical manual some 20 years ago.






19.  RE: New Prices Publications

Posted yesterday
Tanya

That US article says that all CPIs are plutocratic, and then goes on to say the US CPI is based on defined populations.

Currently the CPI-U (Urban) seems to cover 89 % of the population and the CPI-W (Clerical and manual workers) cover 28 %.

Consumer Price Indexes Overview : U.S. Bureau of Labor Statistics
Bls remove preview
Consumer Price Indexes Overview : U.S. Bureau of Labor Statistics
Consumer Price Indexes Overview
View this on Bls >

The weighting is based on those populations' consumption.

Back when that article was written the CPI-U was as low as 60 % and the CPI-W as high as 40 %.

They did not take their weights from the personal consumption expenditure (PCE) of the US National Accounts. Because the PCE is not broken down by segments of the population. It is plutocratic.

The PCE Price Index is used to deflate the PCE because it is based on 100 % of the PCE. -  Plutocratic basket.

The weights are very different - eg housing in the CPI-U it is well over 20 % of the basket and in the PCE index it is only about half of that.

Maybe I have got this wrong ?

Does the ONS have a list of countries that use the democratic basket for the CPI or have they just relied on this article to assume all countries are the same ?

Most countries that I know have indices based on segments of the population - and ....

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

how the US CPI actually worked to contain housing inflation

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