(Bloomberg) -- The U.K.’s most senior statistician has a message for those calling for a reboot to improve the retail prices index -- it is not, and never will be, a good measure of inflation.
National Statistician John Pullinger said the RPI has long overstated inflation and it’s problems aren’t limited to the Carli formula used in its calculation. There are also shortcomings in its approach to housing costs and weighting.
While RPI lost its designation as a national statistic -- which is assigned to economic indicators the U.K. Statistics Authority deems to meet a quality threshold -- in 2013, it is still produced due to its historic use in inflation-linked gilts. It also affects student loans and rail fares, making both more expensive than they would be under other measures.
Pullinger commented alongside an analysis by the Office for National Statistics that concluded that while no measure of inflation is perfect for all uses, RPI has a “number of significant weaknesses.” The analysis comes just over a month since Bank of England Governor Mark Carney weighed on in the long-running debate, saying RPI has “known errors” and the U.K. needs to move away from using it.
“It is important to recognize that the problems with RPI are many,” Pullinger wrote. “RPI does not have the potential to become a good measure of inflation.”
RPI tends to overstate inflation compared with other measures, such as the consumer prices index. It’s currently around 1 percentage point higher than the CPIH rate, which is CPI including owner occupiers’ housing costs, Pullinger wrote.
“Ongoing work by the ONS and others has strengthened the case against the RPI. Overall, RPI is a very poor measure of general inflation, at times greatly overestimating and at other times underestimating changes in prices and how these changes are experienced.”
His message was reinforced by Statistics Authority Chairman David Norgrove, who expressed concern about the ongoing use of the measure in an e-mailed statement later Thursday.
“With this strong evidence for the deficiencies of the RPI, I remain concerned by its widespread use. If people want to measure changing prices they should use other indices such as the CPI or CPIH, which do not suffer the technical weaknesses of the RPI.”
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