Inflation measures under review

Both the two main measures of inflation hit lows in December, but their use may end as official measures.

In December, the annual rate of inflation — as measured by the Retail Prices Index (RPI) — was down to 1.6% from 2.0% the previous month, according to the Office for National Statistics (ONS). That’s the lowest rate since November 2009 when it was rising at just 0.3%.

Under the Consumer Prices Index (CPI) — the measure generally used by the coalition government — inflation was down to 0.5% in December from 1.0% the previous month. The 0.5% rate is the joint lowest rate since records began in 1996.

It is now debatable as to how much longer these inflation measures will be used. In May 2013, the UK Statistics Authority (UKSA) commissioned a review of consumer price inflation from Paul Johnson, director of the Institute for Fiscal Studies.

His review has recommended a move away from the CPI to the Consumer Price Inflation (CPIH) measure, which includes a measure of owner occupiers’ housing costs.

More importantly for union negotiators, the report recommends that the UKSA should re-state its position that RPI is “flawed” and should not be used, and that the government and regulators should work towards ending its use.

The UKSA is now set to launch a consultation on the findings of the report.

www.statisticsauthority.gov.uk/reports---correspondence/current-reviews/range-of-prices-statistics.html

www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/december-2014/index.html