The Office for National Statistics’ (ONS) preferred measure of inflation has been designated a national statistic, opening the door for a change in the Bank of England’s inflation target.
The ONS also warned that the retail price index (RPI), used to index billions of pounds in student loans as well as rail fare increases, is not fit to be used.
The technical arguments around inflation measures have gained prominence since the ONS started using yet another indicator, the consumer price index including owner occupier housing costs (CPIH), as its main measure of price increases.
Yet CPIH was at first rejected by the Office for Statistics Regulation (OSR), which said it did not meet international standards of reliability.
Changes to the way data is collected and analysed have made it more reliable, said Ed Humpherson, director general for regulation at the OSR in a letter sent today to the national statistician, John Pullinger.
ONS director general Jonathan Athow said: “This is an important step in our plans to improve the UK’s inflation statistics.”
He added: “CPIH is our lead measure of inflation and offers the most comprehensive picture of how prices are changing in the economy.”
The designation of CPIH as a national statistic could allow the Treasury to change the Bank of England’s inflation target, although it has previously indicated it has no plans to do so.
The Bank of England is currently mandated by the Treasury to aim for two per cent inflation as measured by the consumer price index (CPI), making it by far the most important indicator for markets.
CPI and CPIH have tracked each other closely in recent times, and currently both show a 2.6 per cent reading.
Meanwhile Athow said RPI is still “a flawed measure of inflation with serious shortcomings and we do not recommend its use.”