Society expresses concern over forthcoming RPI consultation

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Jil Matheson
Concerns about the timing and apparent limits of a forthcoming consultation, on the way in which the retail prices index (RPI) is calculated, have been expressed by the Royal Statistical Society in a letter to the National Statistician, Jil Matheson.
 
While the RSS welcomes the move in principle, RSS president Professor Valerie Isham wrote that: ‘The potential changes could have a direct and material effect on a substantial number of people and organisations, at least some of whom will find difficulty in gathering views and assessing the potential impacts of different options in a short time frame, so we regret that the timescale is less than the full 12 weeks.’ This consultation will be launched on 8 October 2012 and closes on 30 November 2012; most ONS consultations last for around 12 weeks.
 
Professor Isham also set out concerns regarding the limitations of the consultation. ‘The information published so far states that only the RPI formulae are under consideration, not those in the CPI [Consumer Prices Index], and that only the choice of formulae is being considered,’ she said.  ‘The “formula effect” depends not just on the choice of index but also on the characteristics of the price movements and levels being measured, sample design, choice of base period and price collection methods,’ she added.
 
Issues relating to the calculation of both RPI and CPI have been a matter of debate for some time. In August 2010, the RSS wrote to the UK Statistics Authority, calling for, among other things, an investigation into the problem of the so-called ‘formula effect’, which contributes to differences in the values of RPI and CPI. The Office for National Statistics started a research programme into the topic in the summer of 2011 which is still ongoing.
 
‘We had hoped that the research programme being run by the ONS would be allowed to run a full course examining all these factors and enabling them and their interaction to be assessed before changes were considered,’ Professor Isham continued.
 
While accepting that evidence so far uncovered provided arguments for considering changing one of the formulae used in the RPI sooner rather than later, she added: ‘What we would urge is that the consultation, within the limits of practicality and the time frame, covers as many of the issues mentioned above as feasible and, above all, that the work on the formula effect continues so that ultimately we do arrive at the best possible conclusion for both indices.’
 
After the National Statistician’s consultation has closed the Consumer Prices Advisory Committee (CPAC) will consider the responses. A recommendation will be published in January 2013. The Bank of England then needs to decide whether the recommendation would constitute a fundamental change which would be ‘materially detrimental’ to holders of index linked UK government bonds. If so, a final decision on implementing the change will then rest with the Chancellor of the Exchequer.
 
Exceptionally, the 2007 Statistics and Registration Act gives the Chancellor the final word in these circumstances since holders of such bonds issued prior to July 2002 would then have the right to demand immediate redemption at uplifted par. Any change to the RPI would be introduced with the annual update of the RPI when it is published in March 2013.
 

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