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'Strong case' for abandoning CPI 'Strong case' for abandoning CPI
(35 minutes later)
There is a strong case for abandoning the Consumer Prices Index (CPI) as the headline measure of inflation, according to Institute for Fiscal Studies head Paul Johnson.There is a strong case for abandoning the Consumer Prices Index (CPI) as the headline measure of inflation, according to Institute for Fiscal Studies head Paul Johnson.
He was commissioned to review the measures of inflation for the UK Statistics Authority (UKSA).He was commissioned to review the measures of inflation for the UK Statistics Authority (UKSA).
Mr Johnson suggests replacing CPI with CPIH, a measure that includes owner occupiers' housing costs.Mr Johnson suggests replacing CPI with CPIH, a measure that includes owner occupiers' housing costs.
His recommendations are not binding on the government or the UKSA.His recommendations are not binding on the government or the UKSA.
The authority is now expected to launch a consultation on the report and respond to it later in the year.The authority is now expected to launch a consultation on the report and respond to it later in the year.
Mr Johnson also suggests that the government should move away from using the Retail Prices Index (RPI) for any reason as soon as possible.Mr Johnson also suggests that the government should move away from using the Retail Prices Index (RPI) for any reason as soon as possible.
It is currently used to determine how much regulated train fares can rise as well as the interest paid on some government bonds.It is currently used to determine how much regulated train fares can rise as well as the interest paid on some government bonds.
RPI had its national statistic status removed in 2013, but at the time it was decided that the problems with the way it is worked out should not be resolved because that would be moving the goalposts on existing things like bonds and some private sector pension schemes.
RPIJ was introduced as a new version of RPI without the calculation problems, but Mr Johnson recommends stopping the production of RPIJ and that having too many measures of inflation is confusing.
While he says that government and regulators should work towards ending the use of the RPI as soon as possible and that it should then stop being produced, he points out that some government bonds currently based on RPI do not mature until 2068, which means it will be difficult to withdraw it any time soon.
In the most recent set of inflation figures, CPI and CPIH both showed inflation rising by 1.0%.In the most recent set of inflation figures, CPI and CPIH both showed inflation rising by 1.0%.
But CPIH currently has its designation as a national statistic suspended because of concerns about the way it is calculated.But CPIH currently has its designation as a national statistic suspended because of concerns about the way it is calculated.
The CPI is one of the most important indicators for the economy, because the Bank of England's interest rate-setting Monetary Policy Committee's job is to keep CPI within one percentage point either side of its 2.0% CPI target.
Since it started being calculated in 2006, CPIH has always been either the same as or slightly below CPI. It has never been more than half a percentage point below CPI.