Following a consultation on options for improving the Retail Prices Index (RPI), the National Statistician, Jil Matheson, has concluded that the formula used to produce the RPI does not meet international standards and recommended that a new index be published.
The National Statistician’s consultation was prompted by the need to address the gap between the estimates produced by the RPI and the Consumer Prices Index (CPI). The ONS research programme found that use of the arithmetic formulation (known as the ‘Carli’ index formula) in the RPI is the primary source of the formula effect difference between the RPI and the CPI, and that this formulation does not meet current international standards. Therefore, a new RPI-based index will be published from March 2013 using a geometric formulation (Jevons), known as RPIJ.
In developing her recommendations the National Statistician 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 index-linked gilts and bonds in accordance with user expectations.
Therefore, while the arithmetic formulation would not be chosen were ONS constructing a new price index, the National Statistician recommended that the formulae used at the elementary aggregate level in the RPI should remain unchanged.
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 consultation with the Bank of England and, if necessary, the consent of the Chancellor of the Exchequer.
The Board of the UK Statistics Authority has accepted these three recommendations.
The Office for National Statistics will continue to pursue its research programme in the area of consumer price statistics and work with users to maintain the quality of its consumer price statistics.
National Statistics are produced to high professional standards set out in the Code of Practice for Official Statistics. They undergo regular quality assurance reviews to ensure that they meet customer needs. They are produced free from any political interference.
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