CPI inflation measure is ‘flawed’

Plummeting wages under the Tory-led government have been even greater than reported due to major flaws in the government’s preferred method of calculating inflation, according to new research.

The report, compiled by former Treasury economic adviser Dr Mark Courtney, reveals that the Consumer Prices Index (CPI) measure of inflation significantly underestimates the actual rising cost of living faced by workers.

Courtney said that the CPI is deeply flawed in terms of the statistical method used in its calculation and misses out major expenses facing most households, such as owner-occupiers’ mortgage payments.

The difference between the two main measures of inflation, CPI and the Retail Prices Index (RPI), has been growing to the point that RPI is now almost double CPI.

The way that inflation is calculated can have an enormous impact on employees. The prominence given to CPI has encouraged some employers to use it as a reference point for pay negotiating, helping to push pay rises for staff ever lower.

Dave Prentis, general secretary of public service union UNISON said: “This may seem like an irrelevant squabble about statistics but it has huge consequences for the value of pay packets and pensions.

“The public sector pay cap is set to continue until 2016, while Treasury compiled forecasts show that RPI is predicted to rise even faster at more than 3% from next year through to 2018, leaving workers and pensioners hundreds of pounds worse off every year.”

www.unison.org.uk/news/government-s-inflation-measure-hiding-scale-of-cost-of-living-crisis-says-new-report