At its July meeting, the Consumer Prices Advisory Committee (CPAC) discussed including council tax in the measurement of the Consumer Prices Index (CPI) and whether this should be recommended to the Office for National Statistics (ONS). Earlier this year TV licencing fees, trade union subscriptions and vehicle excise duty were included in CPI for the first time, so there were arguments for including council tax. The decision was not to recommend its inclusion, on the grounds that it would not be compatible with the European harmonised standard for CPI.

However, the CPAC did agree to recommend to the ONS that owner occupiers’ housing costs (OOH) be included in a new index to be known as CPIH, being developed for first publication in March 2013. A consultation on the methodology for calculating OOH was run which closed on 31 August 2012.

At its latest meeting on 13 September the CPAC considered the consultation responses it had received to its recommended method for reflecting owner occupiers’ housing costs in CPIH. The recommendation had been to use the rental equivalence approach, although opinion from those who took part in the consultation was divided on whether a net acquisitions approach should be used instead. On balance, the Committee decided to go ahead with its recommendation that the rental equivalence approach should be used to calculate OOH for the purpose of the CPIH.

Comment

Until the advent of CPI being used to calculate pension increases, changes to the methodology for calculating inflation went by largely unnoticed. It will be interesting to see how CPIH develops. The key question being asked at present is whether CPIH, once published from March 2013, will be used by Government in the future as an alternative measure of inflation to RPI and CPI.

Technical information

To read the CPAC papers and minutes from its September meeting go to: www.ons.gov.uk/ons/guide-method/development-programmes/other-development-work/ consumer-prices-advisory-committee/cpac-papers/index.html