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Housing costs may be added to Consumer Prices Index – ONS

  • 12/06/2012
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Housing costs may be added to Consumer Prices Index – ONS
The Office for National Statistics has proposed a new inflation measure to replace the Consumer Prices Index (CPI) which would include housing costs in the calculation.

According to reports, the ONS wants to create a version of the Consumer Prices Index that includes costs such as rent, to be called CPIH.

Currently inflation projections are made using CPI, which does not include the cost of mortgages and other housing costs, although these are contained in the Retail Prices Index (RPI) measure.

The ONS is acting to counter criticisms that CPI is a poor reflection of the true price of inflation because it does not reflect many costs of being a home owner. Housing costs make up 10% of people’s average spending.

A consultation is underway until the end of August. “Once established over time, ONS proposes that CPIH become the main focus of its reporting on consumer price inflation in the UK,” the ONS said, according to the BBC.

If the plan is agreed by the UK Statistics Authority (UKSA), the ONS intends to publish the new measure as of February 2013.

If approved, CPIH will be published alongside the traditional Retail Prices Index (RPI) and the current CPI, which has been the government’s preferred measure of inflation since 2003.

The current proposal for CPIH is that it will include a calculation of how much it would cost someone to rent a home from a private landlord, using the private rental market as its guide.

A new inflation measure will have far-reaching consequences. The Bank of England uses CPI as its target when trying to maintain inflation at 2%. It will be up to the Treasury to decide if the Bank of England should use the new measure as its inflation target, or to uprate pensions and benefits.

The Bank has missed the inflation target for around two years following the financial crisis, with CPI currently at 3% and RPI at 3.5%.

Critics have also questioned whether the inflation target of 2% is now suitable, following inflationary policies such as quantitative easing.

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