'Chopping and changing' official inflation measure leads to public confusion, says expert

Pensions expert Alastair Meeks of Pinsent Masons, the law firm behind Out-Law.com, was commenting as the Office of National Statistics (ONS) confirmed its intention to adopt a new version of the Consumer Price Index incorporating owner-occupier housing costs (CPIH) as the UK's preferred measure of consumer price inflation from March 2017.

Many private sector pension schemes link benefit increases to a particular measure of inflation, while commercial property leases often make reference to a particular measure of inflation when calculating regular increases to rental payments.

CPIH lost its designation as a 'national statistic' in 2014 due to concerns over its credibility and user confidence in the measure. The UK government currently bases increases to certain state benefits, tax thresholds and the state pension on the Consumer Price Index (CPI) measure of inflation, and this is reflected in the relevant legislation. The Bank of England's inflation target is also based on CPI.

Meeks said that the UK's statisticians had "spent the last few years endlessly debating what measure of inflation most precisely captures the experience of price changes" since the government abandoned the Retail Price Index (RPI) measure of inflation for the majority of purposes in favour of CPI.

"Measures have been toyed with and cast aside, leaving the public and potential users of indices uncertain as to whether those indices will be available in the long term if needed," he said.

"The ONS now has a stated preference for CPIH, but the government has indicated that it currently has no plans to switch from CPI for its purposes. Both the ONS and the government should reflect on the fact that accuracy is obviously highly desirable, but consistency of approach for long-running questions such as the appropriate measure of inflation is still more desirable. Chopping and changing on a yearly basis leaves the public confused," he said.

Last year, in a report commissioned by the UK Statistics Authority (UKSA), Paul Johnson of the Institute of Fiscal Studies (IFS) said that there was a "strong case" for replacing the CPI with the CPIH. CPIH includes changes to the cost of housing by estimating what a homeowner would have to pay to effectively rent their own home, including changes to the cost of council tax. It does not measure house prices or mortgage payments.

In March, national statistician John Pullinger backed the conclusions of the report, and confirmed that having CPIH reaccredited as a national statistic by the UKSA was the "top priority" of the ONS. Last week, he published a statement in formal response to the consultation.

Pullinger said that CPIH had "a number of desirable properties" which gave it an advantage over other measures of inflation currently in use, as well as "address[ing] several flaws and limitations present in alternative measures".

"We have already taken a number of steps to increase confidence in CPIH and over the coming weeks we are looking to engage further with users," he said.

He added that any decision by the UKSA to redesignate CPIH would be "based on the degree to which CPIH meets the standards of quality, trustworthiness and value expected by users".

Pullinger's statement also clarifies the extent to which the ONS will stop publishing data associated with the RPI from next year, including the alternative RPIJ measure. The ONS also plans to proceed with the introduction of a measure of inflation which reflects changes to mortgage payments, which will be called the Index of Household Payments (IHP).