I think in future that people will focus on CPIH not RPIJ. RPIJ effectively already exists (by adjusting the RPI for the published formula effect, roughly speaking).
Our effort should therefore be to modify CPIH so that it produces a realistic and accurate measure of inflation. Fortunately CPIH is not constrained by either UK or EU legislation.
a) improvements to the RE methodology for OOH costs (and also private rents data)
b) more data to allow weighting and stratification at the lowest level of the index so as to minimise the need to use a formula.
c) more objective criteria to decide which formula to use for which products (assuming no weights available)
d) attention to the treatment of outliers, whatever formula is used (also consideration of the median of price relatives)
e) decisions on the deliberate omission of certain products from the index because of their peculiar price behaviour (e.g. fashion goods).
f) quantification of all effects used in argument - notably "price bounce".
g) sampling and data collection procedures and the monitoring of them.
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Original Message:
Sent: 10-01-2013 02:59
From: Tony Cox
Subject: National Statistician's announcement on the RPI consultation
Thanks to Bethan for posting the the National Statistician's recommendation, following the ONS consultation on - "options for improving the Retail Prices Index".
The National Statistician has effectively recommended option 1 - no change to the RPI. However a new index RPIJ will be introduced from March 2013 which may go further than the change proposed in option 4 of the consultation. This is because it is apparently proposed to rely purely on the use of the Jevons formula, eliminating the small use of the Dutot used in the CPI.
As you know we responded to this consultation and were particularly concerned at the lack of empirical evidence supporting change. (Our full response is in the library section, 29 November 2012.)
We welcome the decision not to change the RPI at this time, but consider the ONS approach was flawed. The consultation was premature. Research into the size and causes of the differences between the RPI and the CPI was already under way. It should have been allowed to conclude. We would expect decisions to change an index for which billions of pounds of investments are linked to be taken in a considered manner based on comprehensive evidence. This is especially so as any change could affect nearly everyone in the UK - through the pensions they get or hope to get, or the prices they pay for RPI-linked services. Moreover, whilst the ONS pointed to "price-bounce bias" as a reason to change the RPI, no attempt has been made to measure its effect in practice. Many users were left to question whether one of the key rationales for the consultation did indeed warrant such a fundamental change or instead was an abstract theoretical concern.
The consultation was also unbalanced as it concerned itself with only one of the formula used to compile price indexes - the Carli formula used in the RPI. The impact of the different formulae used in both the RPI and CPI depends on their interaction with price movements, price collection approaches and other factors which should have been fully investigated and quantified before any proposal for change was considered.
We plan to hold a meeting in the near future to discuss how the User Group should respond to this recommendation in particular, but also our work programme for the coming year. Details will appear on this web-site soon. In the meantime please let us know your reaction to this announcement and any ideas you have for areas on which the User Group should focus, by posting your thoughts to this web-site.
Tony Cox
Chair
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Original Message:
Sent: 10-01-2013 02:38
From: Bethan Evans
Subject: National Statistician's announcement on the RPI consultation
Dear all,
The National Statistician, Jil Matheson, has published her recommendations following the consultation on options for improving the Retail Prices Index (as of 7:00am, 10 January 2013).
The formal announcement can be found in the following link: http://www.ons.gov.uk/ons/rel/mro/news-release/rpirecommendations/rpinewsrelease.html
and a link to the CPAC papers for more information: http://www.ons.gov.uk/ons/guide-method/development-programmes/other-development-work/consumer-prices-advisory-committee/cpac-papers/index.html
The National Statistician has concluded that the formula used to produce the RPI does not meet international standards and recommended that a new index be published. A new RPI-based index will be published from March 2013 using a geometric function (Jevons), to be known as RPIJ. In developing her recommendations Jil Matheson also noted that there is significant value to users in maintaining the continuity of the existing RPI's long time series without major change, so that it may continue to be used for long-term indexation and for the index-linked gilts and bonds in accordance with user expectations
The National Statistician has also recommended that improvements to the measurement of private housing rents from using an alternative data source should be implemented in the February 2013 RPI indices (published on 19 March 2013). As this change affects the RPI it is subject to the view of the Bank of England and, if necessary, approval by the Chancellor of the Exchequer.
Kind regards,
Bethan Evans
Prices Division
Office for National Statistics