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Report calls for CPI inflation to be replaced

08 Jan 2015

The Consumer Prices Index (CPI) should be abandoned as the UK’s main measure of inflation, according to a new report.

Paul Johnson, director of the Institute for Fiscal Studies (IFS), was commissioned to review inflation data for the UK Statistics Authority.

Mr Johnson has suggested that there is a ‘strong case’ for CPI to be replaced by CPIH as the main measure of inflation, which would take into account housing and living costs faced by homeowners in the UK.

Mr Johnson commented on the fact that there are currently four separate indices of inflation in the UK (CPI, CPIH, RPI and RPIJ), a situation which he said is ‘causing confusion’.

The report also recommends that the Retail Prices Index (RPI) should be abandoned as soon as possible, arguing that taxes, benefits and regulated prices should not be linked to the RPI. However, the RPI is still applied in some key areas, including rail fares, index-linked Government bonds and some pensions.

CPI inflation currently stands at 1%, the lowest level in 12 years, fuelled in part by significant reductions in oil and food prices.

The UK Statistics Authority is set to launch a consultation on the findings of the report.