National Statistical

Our consumer inflation statistics are closely watched, not only because they tell us how price rises are affecting people, but also because they are a crucial piece of information, used by the Bank of England when setting interest rates. Chris Jenkins talks about the complex adjustments we make to ensure the index shows only real, underlying changes in prices.  

One of the most important principles for the Consumer Price Index (CPI) is the concept of pricing like for like; we are looking to capture only genuine inflationary pressure in CPI, so any change in quality or quantity is removed from our calculations.

An example of this is car insurance cover. We will compare the price of comparable levels of insurance cover each month.  Any change in cover, such as the removal of an optional extra or an increase in the policy excess, is treated as a change in quality of the insurance product being offered, not a change in price, and is therefore not reflected in CPI. We understand that many insurers have responded to the rising cost of living by introducing economy products with higher excesses.  For this reason, our car insurance index is currently higher than some other similar measures published by private sector organisations, who include these changes in quality.

We collect over 700 items in the basket of goods and services that are used in the CPI. Not all of these items lend themselves to ‘like for like’ pricing as explained above. One such item that has generated attention recently is our live music index. This type of item is reliant on which artists are touring or playing venues at a particular time.

The index must be calculated by tracking admission prices at specific arenas or venues, with these venues split into ‘major venues’, ‘festivals’ and ‘other venues’ so at least major headline acts can be separated from smaller artists to compare ‘like for like’ as far as possible.

Given the market sensitive nature of CPI, there are certain bits of information that we deliberately suppress to ensure our figures cannot be manipulated. For example we don’t give the exact collection date or detailed locations and brands that prices are collected from, be that music venues or supermarkets.

Using the live music example above, if we advertised which venues or artists were included in our collection there would be potential, however unlikely, for someone to influence prices of the biggest venues in our sample.

We do, however, make the majority of CPI data available each month after publication through our item indices and price quotes, although the details above are withheld. These detailed data can be hard to navigate given we collect around 180,000 prices a month, so we have also recently published a personal inflation calculator and shopping prices comparison tool to help our users better understand the cost of living impact.

As you can see, collecting 180,000 prices and converting them into one, trusted and consistent number can be a challenge, but here at the ONS we will continue to work hard to ensure that policy-makers have the data they need to take important decisions.

Christopher Jenkins is Assistant Deputy Director for Prices Division at the ONS