From the TUC

Measuring Inflation – the government faces authoritative criticism

02 Sep 2010, by in Pensions & Investment, Society & Welfare

The Royal Statistical Society has written to the UK Statistics Authority to call for a comprehensive review of inflation measures. The letter, from RSS President David Hand to Sir Michael Scholar (the Chair of the UK Statistics Authority) expresses concern about the way in which the Office for National Statistics concentrates on the Consumer Price Index, even though it is not the best index for all purposes – such as wage negotiations, where it is “not ideal.” The letter raises concerns about the way in which the ONS monthly inflation press notice now only headlines the CPI, leaving the Retail Price Index to the inside pages (a point we’ve also raised).

On this blog we  have been raising concerns about the new government’s switch from RPI to CPI to uprate benefits and pensions, ever since it was announced in the Budget. The RSS letter says that this decision ‘highlights all the issues with the indices’.

On Touchstone, Bryn Davies wrote an important posting on how technical differences in the calculation of CPI and RPI – arithmetic mean versus geometric mean – guarantee that CPI will produce much smaller increases. This point is also reflected in the RSS letter, which comments:

We consider it highly unsatisfactory that a difference in statistical treatment should generate such a substantial difference in the two indices; we are not aware of any other country where the difference is as great.

The RSS recognises that the Retail Price Index, on the other hand, may possibly overstate inflation, and therefore calls for a thorough investigation.

The fact that the Royal Statistical Society has felt it necessary to take this step is a strong indication that the TUC’s concerns have been well-founded.