Train fare price hike sparks discussion over inflation measures

Written by Web News Editor on . Posted in News

A number of RSS members have been in the news recently, explaining why the Society supports introducing a new way to measuring inflation, after it was announced how much train fares are to increase next year.

RSS representatives have written on the subject in The Times, Telegraph, Economist and City AM, as well as appearing on BBC's Newsnight, after news of the rail fare increase sparked renewed discussion of how inflation is measured. Many consumers expressed outrage that rail fares are linked to the Retail Prices Index (RPI), an inflation measure that is nearly always higher than the Consumer Prices Index (CPI), the target inflation measure used by the Bank of England when setting interest rates. 

The RPI has become a problematic measure of inflation in recent years particularly since 2010 when changes to price collection guidelines worsened a problem with one of the formulae used in its aggregation. It lost its designation as a National Statistic in 2013. ONS have frequently advised since that the RPI should no longer be used to measure inflation but it has remained in place because of its extensive use in contracts. Some contractual uses, such as the uprating of index-linked gilts and many private sector pensions, mean that it will continue to be needed for many years yet.

The government has come under criticism for its continued use of RPI  for a number of payments made by households such as student loan repayments and annual rail fares. On the other hand, uprating of payments made by the government, for example public sector pensions and some benefits, was switched to the normally lower CPI in 2010. 

The RSS believes that we need a measure of inflation that reflects, as accurately as possible, the impact of price increases on households (rather than the economy as a whole, which is what CPI measures). This is why we have, for a couple of years now, been proposing that the Office for National Statistics develop a Household Inflation Index to replace the RPI.

RSS Fellows have sought to explain to the public via the media why we are helping to develop this new measure of inflation. John Astin, who is a member of the UKSA’s Advisory Panel for Consumer Prices, had a letter published in The Times explaining that ONS was currently developing a 'Household Costs Index that many hope will replace RPI as the main measure of household inflation. 'This will have more relevance for ordinary households and will be complementary to CPI,' he wrote.

Tony Cox, who chairs the RPI CPI User Group, wrote a letter to The Telegraph explaining the RSS's role. 'The ONS, guided by the National Statistician and assisted by the Royal Statistical Society members, plans to produce a new index (currently called the Household Costs Index), which many hope will replace the RPI as the main measure of household inflation.' A further letter on the subject from Tony has been published in The Economist., and Hetan Shah, executive director of the Society, authored a City AM piece on why a new measure was necessary.

Former RSS vice president Jill Leyland, who wrote a paper for the RSS on the topic with John Astin in 2015 (PDF),  was also interviewed about the RPI-CPI issue on the BBC, first on a BBC Wales radio programme and then on on Newsnight (33mins in).

 

 

 

 

Inflation Price Indices