ONS decides to continue with inaccurate RPI calculation

Statistics agency chooses consistency over accuracy.

Against expectations and the recommendations of a number of influential economists, as well as its own consumer prices advisory committee, the ONS has decided not to change how the RPI – one of the two key indices measuring the rate of price inflation – is calculated.

The pressure to examine the index comes from the longstanding difference between the RPI and CPI measures of inflation. Except for the brief period in the midst of the recession, when both indices were recording deflation, RPI has consistently shown levels of inflation higher than CPI. Here's the chart for the last three years, for instance:

 

Some of that difference is due to the fact that the two indices measure subtly different things – RPI includes a broader measure of housing costs, for instance, and it ignores very high and low income households. But the ONS has known for a while that there is also a discrepancy caused by the different formulae used to calculate them.

The ONS began a consultation into whether and how it should eliminate this "formula effect", and has concluded that:

Use of the arithmetic formulation (known as the ‘Carli’ index formula) in the RPI is the primary source of the formula effect difference between the RPI and the CPI… This formulation does not meet current international standards.

So what's it going to do about it? Well, nothing:

The National Statistician also noted that there is significant value to users in maintaining the continuity of the existing RPI’s long time series without major change, so that it may continue to be used for long-term indexation and for index-linked gilts and bonds in accordance with user expectations.

Therefore, while the arithmetic formulation would not be chosen were ONS constructing a new price index, the National Statistician recommended that the formulae used at the elementary aggregate level in the RPI should remain unchanged.

The ONS will, however, develop a new measure of inflation, called RPIJ, which will use a different, better, mathematical formula.

The consumer prices advisory committee, a body which meets around five times a year to advise the ONS on measures of inflation, accepted that the ONS has a responsibility to make sure that there is a level of continuity in the RPI calculations which would be destroyed if there were a change to the formula. But, given the ONS also has a responsibility to compile those statistics "in line with best practice", CPAC concluded that not changing RPI would be "unsuitable".

On the other side, arguing for no change, were 332 of the 406 replies to the public consultation. The ONS said:

The large majority of responses did not address methodological issues but identified the impact that the changes implied… would have for them.

The competing requirements present a tricky path for the ONS to follow, but it does feel like it has picked the wrong option at this point. The job of the statistics agency is surely to produce accurate statistics, rather than statistics which are continually inaccurate in known ways. The fact that RPI is used to decide the value of, amongst other things, index-linked bonds is a reason for it to be correct, not for it to be artificially inflated.

As it stands, the ONS has decided to continue publishing a "measure" of inflation which has an accepted and understood upward bias of 1 per cent a year. It has done this, not because of any real statistical reasoning, but because greater accuracy would be bad for a majority of stakeholders. That seems like a bizarre abdication of its duty.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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We're running out of time to stop a hard Brexit - and the consequences are terrifying

Liam Fox has nothing to say and Labour has thrown the towel in. 

Another day goes past, and still we’re no clearer to finding out what Brexit really means. Today secretary of state for international trade, Liam Fox, was expected to use a speech to the World Trade Organisation to announce that the UK is on course to leave the EU’s single market, as reported earlier this week. But in a humiliating climb-down, he ended up saying very little at all except for vague platitudes about the UK being in favour of free trade.

At a moment when the business community is desperate for details about our future trading arrangements, the International Trade Secretary is saying one thing to the papers and another to our economic partners abroad. Not content with insulting British businesses by calling them fat and lazy, it seems Fox now wants to confuse them as well.

The Tory Government’s failure to spell out what Brexit really means is deeply damaging for our economy, jobs and global reputation. British industry is crying out for direction and for certainty about what lies ahead. Manufacturers and small businesses who rely on trade with Europe want to know whether Britain’s membership of the single market will be preserved. EU citizens living in Britain and all the UK nationals living in Europe want to know whether their right to free movement will be secured. But instead we have endless dithering from Theresa May and bitter divisions between the leading Brexiteers.

Meanwhile the Labour party appears to have thrown in the towel on Europe. This week, Labour chose not to even debate Brexit at their conference, while John McDonnell appeared to confirm he will not fight for Britain’s membership of the single market. And the re-election of Jeremy Corbyn, who hardly lifted a finger to keep us in Europe during the referendum, confirms the party is not set to change course any time soon.

That is not good enough. It’s clear a hard Brexit would hit the most deprived parts of Britain the hardest, decimating manufacturing in sectors like the car industry on which so many skilled jobs rely. The approach of the diehard eurosceptics would mean years of damaging uncertainty and barriers to trade with our biggest trading partners. While the likes of Liam Fox and boris Johnson would be busy travelling the world cobbling together trade deals from scratch, it would be communities back home who pay the price.

We are running out of time to stop a hard Brexit. Britain needs a strong, united opposition to this Tory Brexit Government, one that will fight for our membership of the single market and the jobs that depend on it. If Labour doesn’t fill this gap, the Liberal Democrats will.

Tim Farron is leader of the Liberal Democrats.