RPI measure remains unchanged

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The Office for National Statistics (ONS) has decided to keep the inflation measure Retail Prices Index (RPI) intact, despite its own consultation recommending a new index

Instead, a new additional index of inflation will be published alongside RPI form March 2013.

However, the RPI will continue to be used for the updating of private sector pensions and index-linked bonds.

Any change to the method by which RPI is calculated would have had implications for numerous services and investments, including rail fares, water and particularly pensions.

The UK's national statistician, Jil Matheson, earlier concluded that the method to produce RPI was “flawed” and did not meet international standards.

"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,” she said.

The three-month consultation was prompted by the need to address the gap between the estimates produced by the RPI and the Consumer Prices Index (CPI).

While pensioners will welcome the decision, a change would have aided chancellor George Osborne in his deficit reduction plan as estimates suggest it could have saved the Treasury up to £3bn a year in government bonds.

The main difference will be that the new index will use the same formula as the CPI for calculating average prices, meaning it will rise more slowly than the established version.

Jonathan Russell, partner at ReesRussell increasing view that changes are made for “political reasons rather than any other.”

“A measure of some sort is required and for many reasons the decision not to change in order to maintain consistency is sound as hopefully Government will use the RPI as merely one source of information. I am sure that if we do have a new additional index it will be used along with existing for political purposes by all sides when it suits them,” added Russell.

Raymond Doherty

 

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