RPI/CPI User Group

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Subject: Benchmarking clothing inflation - 2017

1.  Benchmarking clothing inflation - 2017

Posted 20-03-2017 14:38
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Attached is my latest attempt to test out the rate of inflation of clothing based on annual benchmarks.

Firstly, it is important to note that CPIH weights have been significantly revised since the 2016 ONS publication.  This results in a much lower weight for the Clothing and Footwear sector.  On average the weights have been reduced by about one tenth.  Also it implies that the OOH costs weight has been revised significantly upwards (which in turn implies that previous estimates of OOH costs were underestimates).  So long as CPIH is not a National Statistic, this can be done, but if it were to become a NS Estimate, revisions would be almost impossible as it would have been used for important contractual purposes and could not be revised.  Consistent revisions in one directions are known as "bias"

Looking at the period from 2003 to 2010, the implied volume increases  are 76% for the CPI and 43% for the RPI.  These figures are clearly implausible and are the reason why the data collection method was changed.  The new method (looking at 2011 to 2016) is much better but still differs considerably between RPI and CPI.  The CPI implies a 12% rise  in volumes while the RPI implies a 13% fall over the 5 year period.  This period was one of falling real earnings, so any rise in the volume share of clothing is extremely unlikely, and the fall shown by the RPI seems about right.  In this context one needs to take account of the rise in commodity prices which affected this period.  These rises seriously affected Cotton prices and Oil prices both of which feed into clothing prices.

Looking at price changes since 2011, the CPI shows a rise of about 0.5% per annum, while the RPI shows a rise of about 8% per annum.  The RPI is much more in line with my own experience and also reflects the underlying rise in commodity prices.

These are my own opinions and readers should form their own conclusion.