By Robert Clear, Researcher in the City of London Research Team
Next year (2017) the Office for National Statistics (ONS) will change the way it measures inflation. The new method, CPIH (Consumer Price Index including Housing), will sit alongside the existing Consumer Price Index (CPI), which is now widely regarded as unsatisfactory. What’s significant about CPIH is that it will include a measure of owner occupiers’ housing costs. These include mortgage payments, dwelling insurance, estate agents’ fees and the costs of maintenance and renovation. Many of these costs have traditionally been excluded from CPI due to difficulties in determining how to calculate them and lack of data.
The implications of switching focus from CPI to CPIH are significant. If applied to the latest data, calculations using CPIH would have resulted in a headline inflation figure of 1.2% in September, compared to 1% using CPI, according to the Financial Times.
CPIH will be published from March 2017, at which point it will become the main focus in ONS’s reporting. ONS hopes that the move will encourage other organisations to make use of the measure. At the time of the launch RPIJ, the Tax Prices index and the RPI pensioners’ indices will be discontinued.
This is not the first time that CPIH has been employed in the UK. It was introduced in March 2013 amidst hopes that it would eventually be used as a price stability benchmark for the Bank of England. But in August 2014 its status as an official National Statistic was downgraded by the UK Statistics Authority – it was to revert to experimental status while ways to improve it were explored.
In November this year (2016), with the relaunch confirmed, John Pullinger, National Statistician and CEO of ONS, acknowledged the importance of the new preferred inflation measure being of recognised National Statistic status, and noted that the organisation is working towards re-designating it. Building confidence in the new measure may take time – the Treasury has no current plans to ask the Bank of England to target CPIH. Re-designation will depend on how far it meets users’ expectations of quality, trustworthiness and value.