Member Article

RPI inflation measure will remain unchanged

There will be no immediate changes to the way the Retail Prices Index (RPI) is calculated, although the ONS has acknowledged the need for a new index, in line with international standards.

The National Statistician’s consultation was prompted by the need to address the gap between estimates of inflation produced by the RPI and the Consumer Prices Index (CPI).

A new index will be published in March 2013, although the ONS said existing RPI’s should continue to be used for long-term indexation and for index-linked gilts and bonds.

A statement said: “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 also recommended improvements to the measurement of private housing rents, from using an alternative data source should be brought introduced in February.

Some pensions savings plans are linked to RPI, causing concern among savers and investors that changes would disrupt their yields, while consumers paying train fares and student loans might have benefited had the RPI been reduced.

Dr Ros Altmann, Director-General of Saga comments: “The purpose of inflation uprating is to protect people’s incomes against inflation. If you devalue the index which is used then the protection is taken away.

“Simply dumbing down RPI would mean many people lose out on their inflation protection. This affects millions of people with pensions linked to RPI as well as nearly 1 million with National Savings inflation linked bonds or other RPI linked investments.

“We hope that this move is not just a desire to reduce costs and it is actually about finding the appropriate inflation rate. A balanced assessment of the accuracy of both CPI and RPI, rather than focussing only on reducing RPI, would at least be more reassuring as to the motives for this change.”

This was posted in Bdaily's Members' News section by Tom Keighley .