RPICPI User Group

were they not due to have been published last week ?

I thought I saw something about November 13 being their due date.

AL

Andrew,

You can find the response on the ONS web-site under archived consultations.

The following link should take you there directly -

http://www.ons.gov.uk/ons/about-ons/user-engagement/consultations-and-surveys/archived-consultations/2012/owner-occupiers-housing-costs/index.html

The second and third items on the list on the right under downloads are the ones you are after.

It is disappointing that, as a minimum, the ONS does not appear to have alerted those responding to the consulation to the publication of its response.

Tony Cox



Show Original Message -------------------------------------------
Original Message:
Sent: 17-11-2012 07:23
From: Andrew Lydon
Subject: ONS response to the OOH Consultation and CPAC annual report

were they not due to have been published last week ?

I thought I saw something about November 13 being their due date.

AL

I have now had a chance ot look at the ONS response to consultation responses.

On the first issue of why the CPIH looks almost identical to the CPI, they are just repeating the nonsense they were saying earlier in the year in the egroup.

It is clear no new thought has been given to these issues since they were raised in detail in the summer. As such someone is failing somewhere in their duty of care and to think about what is being said.

They talk about 00H/RE systems as if they know of lots of them. Well there actually are not, and the US system is the best example for the UK. The US house price boom shows up in their CPI figures. And they don't use the national accounts to weight OOH in the CPI. The PCE Price index is used to deflated the national accounts and that has a lower weight for OOH. But still the PCE Price index and the CPI stay far closer to each other than any of our UK price indices.

That last point is in part because they have been genuinely committed to low/0 inflation.

AL





Show Original Message -------------------------------------------
Original Message:
Sent: 17-11-2012 12:15
From: Tony Cox
Subject: ONS response to the OOH Consultation and CPAC annual report

Andrew,

You can find the response on the ONS web-site under archived consultations.

The following link should take you there directly -

http://www.ons.gov.uk/ons/about-ons/user-engagement/consultations-and-surveys/archived-consultations/2012/owner-occupiers-housing-costs/index.html

The second and third items on the list on the right under downloads are the ones you are after.

It is disappointing that, as a minimum, the ONS does not appear to have alerted those responding to the consulation to the publication of its response.

Tony Cox


-------------------------------------------
Original Message:
Sent: 17-11-2012 07:23
From: Andrew Lydon
Subject: ONS response to the OOH Consultation and CPAC annual report

were they not due to have been published last week ?

I thought I saw something about November 13 being their due date.

AL

I have been preparing to take the issue of the CPIH not being fit for purpose to the Ombudsman. However, it has now emerged that I need to complain to the Chair of the UKSA first.

The UKSA initial complaint panel claims that the UKSA relied on the Consumer Prices Advisory Committee to look at the quality issues around the CPIH. The only place I can see where this was addressed was in the ONS Response to the OOH Consulation. It was addressed as the first point raised. However, the responses were frankly inadequate, and I hope this can be seen in the following.

Along side the pasted ONS text I have pasted in a rebuttal. ( Hoping the formatting will survive).


Point Raised 1 ( page 9 of the Response Document ) 

Long term growth rates of OOH(RE) appear
to be significantly lower than other
measures of OOH and it does not appear to
capture either house price booms or
increases in mortgage interest payments.
Some users also requested ONS to
carefully monitor the OOH(RE) series over
time.

ONS response                                                                           My rebutal

ONS recognises that many users expect OOH to
reflect increases in house prices or mortgage
payments. However, OOH(RE) belongs to a
family of use-based methods which reflects only            House price booms shows up in the US index, which                                                                                     is the best of its class, and the most appropriate                                                                                                         comparison for the UK. 
the consumption cost of owner occupiers'
housing. Increases in house prices will not
necessarily be captured in this approach.                        However they should show up in the 2000s because                                                                                       food  energy and manufactured goods were often                                                                                                    experiencing falling prices.
Although, this may be inconsistent with some
users' expectations of measures of OOH, the
inclusion of an asset price and therefore capital                 Housing/OOH is both a consumption of service and                                                                                                an investment good. Which other country                                                                                    uses this as a basis for under-weighting them in a CPI ?
gains makes the measure less suitable for a
measure of consumption.

It is also worth noting that the new private rental
data source derived from Valuation Office
Agency (VOA) data for England and comparable
data from the Welsh and Scottish governments
are available from 2007 onwards. Prior to this the
OOH(RE) estimates are based on existing CPI                        This is a trivial point if you have not weighted 
                                                                                                   OOH properly in the first place.
private rent data. As the OOH(RE) series using
the new data source is relatively short, it is
difficult to assess its true long term growth rate.
ONS will continue to monitor the OOH(RE) series
as set out in Practice 5 of Principle 4 of the Code
of Practice for Official Statistics:

The net acquisition series will be available to
users in line with the Eurostat regulation which
will come into force late 2014 requiring ONS to
provide a standalone OOH(NA) series
2 New data source for OOH(RE) could be
subject to change and discontinuity
OOH(RE) uses private rental data from the
Valuations Office Agency, the Scottish
Government and Welsh Government. ONS has
considered the risk of changes being made to the
data throughout the development process and
are currently finalising agreements with each of
the data providers to ensure that ONS is
consulted on any proposed changes to the rental
"






Show Original Message -------------------------------------------
Original Message:
Sent: 17-11-2012 07:23
From: Andrew Lydon
Subject: ONS response to the OOH Consultation and CPAC annual report

were they not due to have been published last week ?

I thought I saw something about November 13 being their due date.

AL

I am very grateful to Andrew Lydon for his tenacity in pursuing this issue, and I hope that he gets somewhere with his complaint to the Chair of the UKSA.

Unfortunately, Britain is stuck with the 2011 decision to make the CPI rather than the RPI the index used for a lot of escalation. The UK CPI or HICP was originally designed as an indicator of inflation for use by a central bank, the Bank of England, or, if Britain adopted the euro, the ECB. I think it would have clarified issues a lot if that arrangement had remained intact. Hopefully, the UKSA will render a decision on the formula effect that will remove the upward bias that now seems to exist in that index and the government will pass new legislation that reduces or eliminates the use of the CPI as an escalator by the British government.

Andrew rightly objects to the ONS statement that they cannot be expected to create an index that reflects housing booms, since they are calculating an index of the user cost type that includes only the cost of consumption. In fact, there is no reason why an index designed to be the inflation indicator for a central bank should cover all costs of consumption services and only consumption services. This is the purview of an escalator series. The only justification for this would be that it is so important for the central bank to control inflation defined as the cost-of-living increases of the general population that no other definition has any merit. But then the Bank of England would want to target something that looks like the RPI, just as the Bank of Canada targets the quite-comparable Canadian All-items CPI.

If one switches the conversation from how CPIs are calculated to how consumer price series that are targeted by central banks choose to treat OOH, one can see that the ONS's position is not widely accepted. The Bank of Japan, the Mexican central bank and the South African Reserve Bank choose to target a consumer price series with a rental equivalence approach to OOH, but other important central banks simply exclude most OOH costs from their inflation indicator, including those of China, Russia, Brazil and most other countries in Latin America and Eastern Europe. 

Right now, the Reserve Bank of Australia, the Reserve Bank of New Zealand and the Azerbaijani central bank target consumer price series with a ne acquisitions approach to OOH: they don't accept that their inflation indicator should be limited to the cost of consumption services of dwellings, however that might be defined. The ECB will likely switch to this approach late in this decade or early in the next one. The South African Reserve Bank is studying the same kind of a change. 

It should be noted that while the Bank of England previously targeted a series, RPIX, whose OOH component could be called a user cost series, and the Bank of Canada still does, neither index can be reasonably considered a measure of the cost of consumption services in the National Accounts sense of the term. Both included transaction costs such as stamp duty (land transfer taxes in Canada), estate agent fees (real estate commissions in Canada) and surveyor fees, which in the NA are classified as part of the residential construction component of gross fixed capital formation.

In summary, if one thinks the main or exclusive purpose of a CPIH series would be to replace the CPI as the target inflation indicator of the Bank of England, there is no reason to suppose its OOH component should measure OOH based on the NA definition of consumption services of owner-occupied dwellings. There is no broad-based international acceptance of this position, and there is certainly a strong movement towards adopting the NA approach. It should be remembered that it was less than 15 years ago, on December 15, that the Reserve Bank of New Zealand became the first central bank to target a consumer price series with an OOH(NA) component. This makes the strong push towards adopting the NA approach world-wide all the more impressive.






Show Original Message -------------------------------------------
Original Message:
Sent: 07-12-2012 07:30
From: Andrew Lydon
Subject: ONS response to the OOH Consultation and CPAC annual report


I have been preparing to take the issue of the CPIH not being fit for purpose to the Ombudsman. However, it has now emerged that I need to complain to the Chair of the UKSA first.

The UKSA initial complaint panel claims that the UKSA relied on the Consumer Prices Advisory Committee to look at the quality issues around the CPIH. The only place I can see where this was addressed was in the ONS Response to the OOH Consulation. It was addressed as the first point raised. However, the responses were frankly inadequate, and I hope this can be seen in the following.

Along side the pasted ONS text I have pasted in a rebuttal. ( Hoping the formatting will survive).


Point Raised 1 ( page 9 of the Response Document ) 

Long term growth rates of OOH(RE) appear
to be significantly lower than other
measures of OOH and it does not appear to
capture either house price booms or
increases in mortgage interest payments.
Some users also requested ONS to
carefully monitor the OOH(RE) series over
time.

ONS response                                                                           My rebutal

ONS recognises that many users expect OOH to
reflect increases in house prices or mortgage
payments. However, OOH(RE) belongs to a
family of use-based methods which reflects only            House price booms shows up in the US index, which                                                                                     is the best of its class, and the most appropriate                                                                                                         comparison for the UK. 
the consumption cost of owner occupiers'
housing. Increases in house prices will not
necessarily be captured in this approach.                        However they should show up in the 2000s because                                                                                       food  energy and manufactured goods were often                                                                                                    experiencing falling prices.
Although, this may be inconsistent with some
users' expectations of measures of OOH, the
inclusion of an asset price and therefore capital                 Housing/OOH is both a consumption of service and                                                                                                an investment good. Which other country                                                                                    uses this as a basis for under-weighting them in a CPI ?
gains makes the measure less suitable for a
measure of consumption.

It is also worth noting that the new private rental
data source derived from Valuation Office
Agency (VOA) data for England and comparable
data from the Welsh and Scottish governments
are available from 2007 onwards. Prior to this the
OOH(RE) estimates are based on existing CPI                        This is a trivial point if you have not weighted 
                                                                                                   OOH properly in the first place.
private rent data. As the OOH(RE) series using
the new data source is relatively short, it is
difficult to assess its true long term growth rate.
ONS will continue to monitor the OOH(RE) series
as set out in Practice 5 of Principle 4 of the Code
of Practice for Official Statistics:

The net acquisition series will be available to
users in line with the Eurostat regulation which
will come into force late 2014 requiring ONS to
provide a standalone OOH(NA) series
2 New data source for OOH(RE) could be
subject to change and discontinuity
OOH(RE) uses private rental data from the
Valuations Office Agency, the Scottish
Government and Welsh Government. ONS has
considered the risk of changes being made to the
data throughout the development process and
are currently finalising agreements with each of
the data providers to ensure that ONS is
consulted on any proposed changes to the rental
"





-------------------------------------------
Original Message:
Sent: 17-11-2012 07:23
From: Andrew Lydon
Subject: ONS response to the OOH Consultation and CPAC annual report

were they not due to have been published last week ?

I thought I saw something about November 13 being their due date.

AL