RPI/CPI 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.

1.  APCP-S minutes and papers

Posted 14-07-2017 15:14
Dear users,

Please see the agenda, minutes and papers of the May Advisory Panel on Consumer Prices (Stakeholder).

Also, please note that we have revised the Terms of Reference in line with discussion from the January APCP-S:

Kind regards,

Helen Sands (ONS)

2.  RE: APCP-S minutes and papers

Posted 15-07-2017 10:44
I note from the minutes, that work on FISIM has been given a low priority in the Work Programme.

However I think one basic piece of work could be done fairly easily and would inform further work.  The need is to estimate the order of magnitude of the weight which FISIM would have in a Consumer Price Index if it were included.  If this is small, then low priority is justified.  However I suspect it is not small.

FISIM is estimated as part of the National Accounts on an annual basis, so it should be easy to establish how big a weight it would be likely to have.


3.  RE: APCP-S minutes and papers

Posted 16-07-2017 07:49
Dear Gareth :
Thank you for your comment. I think the passage you were referring to was in section 4.5: "It was pointed out that it was not appropriate to compensate households for their house price going up in value." This seems to reprise the statement by the National Statistician last November, announcing the forthcoming termination of the RPIJ: "...[A]lthough RPIJ addresses the problems relating to RPI's use of the Carli formula, RPIJ shares RPI's other shortcomings, including using a direct measure of house prices to estimate owner occupiers' housing costs. It therefore is not a good economic measure of consumer inflation." As you point out, the rental equivalence approach adopted in the CPIH is related to the opportunity cost approach to measuring homeownership costs, which includes the opportunity cost of homeowners' equity and the replacement cost of depreciation. The first clearly relates to housing prices, the second to dwelling prices, but housing prices can, as they are in the RPI, be used as a proxy for them. In fact, one can define the rate of interest assigned to the opportunity cost of owner's equity residually to make a direct opportunity cost measure equivalent to the rental equivalence measure. So it is hard to see why Mr. Pullinger would reject the RPIJ on these grounds, unless he sees some kind of intrinsic merit in indirect measures over direct ones. (This would be the opposite of the position of the designers of the HICP, who rejected the use of proxy indices on principle.)
This would seem to be a major stumbling block for the HCIs: if the RPIJ has been discontinued because it directly measures house prices and this is inappropriate, how can an HCI be appropriate?
It is curious that no-one questioned the presence of renovation prices in the household inflation index as defined by John and Jill, as these, much more than house prices, really have been rejected as out of scope in virtually all official consumer price indices. (The exception would seem to be the US homeownership CPI, which included improvements in homes from its 1964 revision until the net acquisitions approach used at that time was replaced with the January 1983 CPI update.)
For me, this was one of the big pluses of the HII approach, and I hope it is carried over to the HCIs. The homeownership costs that are in a consumer price series designed for upratings should relate to the actual costs that homeowners face, not something out of an economics textbook. To be sure, as Jill acknowledged at the meeting, such a comprehensive measure raises issues that should be discussed. In my view, these are strictly weighting issues, that can be resolved with an appropriate normalization of weights, if this is deemed necessary. Not to trivialize these concerns, it is more important in price index measurement to get your prices right than to get your weights right.
Best regards,

4.  RE: APCP-S minutes and papers

Posted 15-07-2017 10:57
There is a statement in the minutes that it would be inappropriate to allow house price rises to affect an index to be used for up-ratings.
There is also some questioning of the inclusion of interest rates.

However it should noted that both house prices and interest rates go to determine opportunity cost, and opportunity cost is included in the imputed rent approach used in CPIH.

House prices also go to determine depreciation which is also included in the imputed rent approach.

The implication is that CPIH should not be used for uprating and that the CPI should be used for this purpose.  I don't agree with this point of view.  I am just pointing out the inconsistency of the reasoning which seems to be going on.