RPI/CPI User Group

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House of Lords - Inquiry into use of the RPI

  • 1.  House of Lords - Inquiry into use of the RPI

    Posted 12-06-2018 12:29

    New inquiry launched into use of RPI as a measure of inflation

    12 June 2018

    The Economic Affairs Committee launches its short inquiry into the use of RPI with two evidence sessions. Witnesses will be asked if we should stop using the Retail Price Index (RPI) as a measure of inflation, what reasons are there for keeping it, and what impact would changing RPI have on the people and organisations who use it.

    Background to the inquiry

    Following comments to the Committee by the Governor of the Bank of England in January 2018 that it may be time to transition away from using the retail price index (RPI), as referred to in the Committee's most recent report, Treating Students Fairly: The Economics of Post-School Education, the Economic Affairs Committee of the House of Lords is conducting a short inquiry into the use of RPI. It will conclude before the summer recess.

    Witnesses

    Tuesday 12 June in Committee Room 1, Palace of Westminster
    At 3.35pm

    • Chris Giles, Economics Editor at the Financial Times
    • Paul Johnson, Director of the Institute for Fiscal Studies (IFS)

    At 4.35 pm

    • Jonathon Athow, Deputy National Statistician and Director General for Economic Statistics at the Office for National Statistics (ONS)
    • Sir David Norgrove, Chair of the UK Statistics Authority (UKSA)

    Likely questions

    • What are the differences between how RPI and CPI are calculated?

    • What are the arguments against scrapping RPI altogether?

    • How much could the Government save in reduced debt interest payments if it switched index-linked gilts onto CPI?

    • Do you agree with the Chancellor of the Exchequer that moving from RPI to CPI will have a physical cost and will shift the burden of taxation between different groups of taxpayers? Who will be the winners, and who will lose out?

    • Why do you think RPI is "a poor measure of inflation"?

    • In the ONS's March 2018 paper on RPI, the National Statistician said that a reason for not changing RPI was that some users valued the continuity of the index, despite its flaws. Can you explain why you think it is more important for a statistic to be consistent than correct

    • Can you explain the process for making changes to RPI?

    • What would you like to see happen to RPI?

    Further information



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


  • 2.  RE: House of Lords - Inquiry into use of the RPI

    Posted 12-06-2018 16:25
    Hi Tony and thanks for this.

    I only became aware of this earlier via social media ( which shows it does have a use...). I contacted the Lords Committee to invite them along tomorrow and here is a salient section from my email.

    "Accordingly I am making contact for two reasons. Attending the event would give your members exposure to a much wider range of expertise on the subject of the RPI than the limited group you have today. Also it will help you with the subject of balance as the four speakers you will be listening to today are all against the RPI with some being very strongly so. This gives a very unbalanced view of the ongoing debate on the subject."

    Regards

    Shaun



  • 3.  RE: House of Lords - Inquiry into use of the RPI

    Posted 13-06-2018 13:18
    Hi All

    The House of Lords Economic Affairs Committee have replied promptly and here is the main part.

    "Thank you for your email yesterday, and for your kind invitation to the Committee. Yesterday was only the first set of sessions for the inquiry, and we have a session next week which we expect the arguments in the other direction to come to the fore.

     

    Staff to the Committee will be in attendance this evening, and we have emailed the details to the members: the unfortunate short notice and the busy parliamentary schedule currently means it may be unlikely for them to attend. We will report back to them on the event nevertheless."

     

    I look forwards to meeting them later.

    Regards

    Shaun

    https://notayesmanseconomics.wordpress.com/




  • 4.  RE: House of Lords - Inquiry into use of the RPI

    Posted 29 days ago
    Edited by Shaun Richards 29 days ago
    Hi All

    I have replied again to the Economic Affairs Committee because of a new development. Many of you will be aware that the RPI is criticised due to its use of house prices. However the President of the European Central Bank Mario Draghi has given the opposite view in correspondence to an MEP published on Friday.

    "As also indicated in its Opinion on the HICP Framework Regulation5 , the ECB has been, from a conceptual point of view, in favour of the inclusion of an owner-occupied housing price index in the HICP, since the index's coverage of household expenditure for consumption purposes could be improved"

    This does pose a serious question as of course the UK CPI is a copy of the European measure. Indeed this was one of its purposes.

    Regards

    Shaun Richards

    https://notayesmanseconomics.wordpress.com/


  • 5.  RE: House of Lords - Inquiry into use of the RPI

    Posted 25 days ago
    It seems to me that the witnesses at the Economic Affairs Committee's RPI hearings are completely biased. Chris Giles is an anti-RPI fanatic, for reasons one can only guess at. Paul Johnson is usually fair minded but seems to have been got at over RPI. Many of us will have been at the presentation he gave on his report. Someone there pointed out that many statisticians disagreed with his conclusions about RPI. He said "not the ones I talk to". Since it was clear he had been principally talking to ONS this was hardly surprising but did not show unbiased judgment on his part. The other tow witnesses are distinctly establishment. Why did they not ask Dr Courtney, for example. It is clear to me that RPI over-estimates by a small amount. It is equally clear that CPI underestimates by a large amount. This just looks like another stitch up.
     
    David Quinn





  • 6.  RE: House of Lords - Inquiry into use of the RPI

    Posted 25 days ago

    David, I agree with you about the witnesses on January 12, who were uniformly poor.  The witnesses the week after were much better, particularly Simon Briscoe. They all seemed to agree that there was a need for at least two consumer price series, a household-oriented measure and a macroeconomic measure. The first four all seemed to be looking for one index to rule them all and in the darkness bind them. For example  David Johnson  said: "…there is no particular reason for using RPI and CPI in different cases. There is no argument there." I don't think Dr. Courtney was the witness I would most have liked to have seen instead of the first four, although he certainly would have provided a corrective to the absolute dismissal of the use of the Carli formula by the witnesses. I was particularly disappointed in Chris Giles as he mentioned the Dutot formula in his testimony but seemed to have no problem with it. I suspect it is still too much used in the UK consumer price series, even though it can generate noisy series as compared to the Jevons particularly for luxury goods. He seemed to understand that well enough when he was a member of the CPIAC. Now he seems to have forgotten all about it.

     

    The HCIs didn't come up at all on January 12, as they surely would have if John Astin, Jill Leyland, or Helen Sands had been called on to testify.  Shaun Richards would surely have pointed out that the case for moving from RPIX to the UK HICP as the Bank of England's target inflation indicator was weak, and that it implicitly meant an increase in the target rate of inflation. Also, the Lords would not have been misinformed about the treatment of owner-occupied housing in the RPI, if I had been a witness. It was absurd to say that the accounting approach to OOH used in the RPI was some kind of muddled mix of the payments and user cost approaches. It is a separate variant of the user cost approach, distinct from the opportunity cost approach. It was disappointing that neither of the witnesses from the UKSA seemed to be aware of this. I doubt that it would be good value for the UK taxpayer but I would be happy to appear as a witness before the inquiry if the UK government would pay my travel expenses.

     

    Best regards,

     

    Andrew




  • 7.  RE: House of Lords - Inquiry into use of the RPI

    Posted 24 days ago
    There was one particular issue which was I think not mentioned at all in these sessions, and that is the future status of the CPI. Everybody seemed to be assuming that this is THE index which will stand forever as a steady beacon. But let us not forget that the UK CPI is the EU's HICP, and the future development of the HICP will be out of the UK's control after Brexit. Is that acceptable to the government and the Bank?


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



  • 8.  RE: House of Lords - Inquiry into use of the RPI

    Posted 23 days ago

    Eventually, people will realise tht there should be an owner-occupied housing component.  Whether or not they accept the way it is done in the CPIH or the RPI, eventually something will have to be done about that.






  • 9.  RE: House of Lords - Inquiry into use of the RPI

    Posted 25 days ago
    Unfortunately the current establishment is opposed to the arithmetic mean and pro the geometric mean.

    They are living in the wisdom of 40 years ago, which has now been shown to be wrong.

    GJ


  • 10.  RE: House of Lords - Inquiry into use of the RPI

    Posted 11 days ago

    House of Lords Economic Affairs Committee Call for Evidence

     

    Today I received an email from the secretariat to the House of Lords Economic Affairs Committee with a Call for Evidence for their inquiry "The use of the retail price index (RPI)".

     

    Some user group colleagues may have received a similar email.

     

    The link to this call for evidence is at https://www.parliament.uk/business/committees/committees-a-z/lords-select/economic-affairs-committee/news-parliament-2017/rpi-inquiry-launch/

     

    The pdf document included amongst the call for evidence documentation states –

     

    "We are looking to hear from as diverse a range of views as possible-if you think someone you know would have an interest in contributing to the inquiry, please do pass this on to them."

     

    User group colleagues may wish to submit evidence.

     

    All the best.

     

    Arthur




  • 11.  RE: House of Lords - Inquiry into use of the RPI

    Posted 9 days ago

    Dear Arthur:

    Thank you for this. I hadn't received the e-mail you did but on your advice I had already written to the secretariat for the Committee. It seems they are quite serious about not accepting documents not prepared strictly for the inquiry, as I found out. I think the restrictions on length of submissions are quite strict considering the complexity of the issues involved and the small number of people who would likely bother to write something.

    I just added a document to the library that is essentially a comment on the testimony on the RPI issue before the Lords Committee thus far: "The RPI Follows an Accounting Approach, Not a Blended Approach, to Owner-Occupied Housing Costs". I would like to thank Gemma Keane of ONS for valuable information about transaction costs in the RPI. I also made very minor changes to a previous paper I had written about the same subject two years ago, which is also in the library. The changes in no way attempt to remove evidence of the not very great evolution in my views since I wrote the original paper. My new paper much exceeded the limit for submissions for this inquiry even though it only deals with a small part of the topic. I really do think that submitters are not being given enough space to express their views.

    Good luck with your own submission if you are writing one.

    Best regards,

    Andrew