As from March next year the Office for National Statistics will incorporate housing costs in its headline measure of inflation.
Following a consultation the statistical agency, which is independent of the government, has opted to shift its focus from the use of the consumer price index (CPI) when measuring inflation, to the consumer price index using owner occupier’s housing costs (CPIH).
The CPIH calculates housing costs for owner-occupiers based on the rental value and council tax band of their properties, not in relation to house prices.
Using the most recent figures, headline inflation in September would have risen to 1.2% if the calculation had been based on CIPH, as opposed to the 1% measured using CPI.
While it has not yet been confirmed whether this new measure will be used for index-linked benefits or for the Bank of England’s inflation target, the ONS hopes the move will encourage wider use of CIPH.
John Pullinger, chief executive and national statistician, ONS said:
“I have listened to views on CPIH and ONS has engaged with interested parties and released a number of publications to raise understanding and confidence.
Various users have indicated that they are open to recognising CPIH as the main measure of consumer price inflation and are comfortable with the methodology behind it.
I have therefore concluded that we will make CPIH our preferred measure of consumer price inflation as I indicated earlier this year.
I believe that CPIH has a number of desirable properties, most notably the inclusion of an element of owner occupiers’ housing costs.
It also addresses several flaws and limitations present in alternative measures.
We intend to make CPIH the preferred measure from March 2017, by which time all the planned improvements will have been implemented.”
Chief economist of the Resolution Foundation, Matthew Whittaker said that the shift would change the picture of income growth, adding:
“Once CIPH has proved itself worth of national statistic status it makes sense to establish this as the default measure of inflation for use by government and researchers alike.”