Rate of inflation creeps up, whilst RPI is downgraded

Posted on March 19th, 2013 | Categories - News

Rate of inflation creeps up, whilst RPI is downgradedThe latest figures from the Office for National Statistics (ONS) show that inflation crept up in February, pushed higher by rising energy prices.

The Consumer Prices Index (CPI) rose to 2.8% in February having been stuck at 2.7% for the past four months. At the same time the Retail Prices Index (RPI), which is no longer being classed as a ‘national statistic’, actually fell slightly from 3.3% in January to 3.2% in February.

According to the ONS CPI was pushed higher by rising energy prices, and consumer goods such as cameras and computer games.

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The rise means that the Bank of England’s Monetary Policy Committee has missed its 2% inflation target for another month and will do to help savers who are struggling to find a real return even on the best buy savings accounts and also workers, who are seeing their wages rise more slowly than inflation.

RPI downgraded

Today’s inflation figures come hot on the heels of news from the UK Statistics Authority that the ONS will no longer class RPI as a ‘national statistic’.

Earlier in the year the UK Statistics Authority requested a reassessment of RPI, their report was published on 14th March and concluded that the way RPI is calculated fails to meet international standards.

RPI is used extensively to set the State Pension, as well as increases to other types of pension, rail fares and various utility bills. There are also many savings accounts, particularly those offered by National Savings & Investments (NS&I), where the interest rate is linked to RPI. Despite no longer being a ‘national statistic’ it has been confirmed that the ONS will continue to produce the figure.

Although the precise consequences of RPI no longer being a ‘national statistic’ are unknown, many financial experts have expressed concern. There are worries that pension funds in particular, could look to revert to the CPI measure of inflation, which tends to be lower than RPI for pension increases.

Speaking after the announcement pension expert, Dr Ros Altmann said: “If it is no longer considered to be a ‘National Statistic’, will pension trustees decide to stop using it for pensioner increases in future? This would need to be challenged in the Courts, but as it could represent a significant cost saving to many schemes, some trustees may decide to test this even when the Trust Deed specifies pension rises must be based on RPI.”

Dr Altmann continued: “It’s not clear what the ramifications of this will be, if any. It could be that there will be little impact, as the measure will still be calculated, even if it is no longer an official statistic. Ultimately, there is no ‘right’ measure of inflation – all the statistical measures are just estimates. The fact that RPI is higher than CPI can sometimes better reflect the reality of price increases faced by the population.”

Jason Riddle of Save our Savers, said: “It is not clear exactly what the implications of RPI no longer being classified as a National Statistic are. But the fact that this move follows on so soon from a failed attempt to bring the index into line with, the normally lower, CPI is enough to raise suspicions that moves are afoot to sideline RPI.”

“Inflation is an important economic tool for the Chancellor. In it he has an ally that is systematically reducing the real value of the UK’s debt, and, at the same time, by manipulating the measures used to report inflation, he is able to reduce Government spending that is index-linked to it. The fact that inflation is also eroding the value of Britain’s savings seems to be of no concern to him at all.”

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