DEBATE: Is it about time we scrapped the retail price index as a measure of inflation?
YES – Suren Thiru, head of economics at the British Chambers of Commerce.
RPI is a deeply flawed measure of price growth that does not reflect changes in spending patterns in the way that consumer price inflation does. The Office for National Statistics concluded back in 2013 that it did not meet the required standard to be a credible national statistic. But because RPI is almost always higher (due to the way it is calculated), it is still widely used. This is particularly galling to students who are now facing an interest rate of over six per cent in their loan repayments, and for commuters who now face the biggest hike in train fares in six years, all while wage growth remains below inflation. The annual rise in firms’ business rates bill is also pegged to this discredited measure until 2020.
At a time when the UK economy is slowing, with our own Quarterly Economic Survey showing that consumers and businesses are under significant cost pressures, it is surely time to place RPI on the economic scrapheap.
NO – Vicky Pryce, board member of CEBR and a former joint head of the Government Economic Service.
There are a number of statistical releases and administrative data produced that don’t meet the strict requirements to be designated a national statistic, but are closely watched. Every month since 1947, the retail price index (RPI) has measured the price change of a basket of standard goods and services, including housing costs. It is one of those closely watched statistics. But it is still used by the government in the annual lifting of standard rail fares and student loan interest rates, for example.
The problem is that RPI has recently been considerably higher than the newer, slightly differently calculated and EU-aligned consumer price index (CPI), which is now used for inflation targeting, and for upgrading state pensions and benefit payments. That may indeed be considered unfair. But nevertheless, the RPI should be retained as a policy indicator, given that the more information we have on cost pressures faced by millions of ordinary consumers, the better – especially as Brexit looms.