Articles - Comment from Barnett Waddingham on CPIH inflation measure

 The UK Statistics Authority has revoked the National Statistic status of the “CPIH” inflation measure. CPIH was introduced in March 2013 to address perceived shortcomings in the Consumer Prices Index (CPI), by including the costs of owning and living in your own home. Based on information now available, the Authority believes that its initial methods for calculating housing costs need to be improved, which would mean that annual increases in CPIH over recent months could be 0.2 percentage points higher.

 Commenting on the news, Richard Gibson, actuary, Barnett Waddingham says:

 “While increases to pensions are normally based on RPI or CPI, some schemes’ rules may give them discretion over the inflation measure to be used. Employers welcomed the new CPIH measure when it came out in 2013 as a cost-saving alternative to the traditional measures and pointed to CPIH’s status as a National Statistic to help justify using it, after RPI’s own National Statistic status was revoked in 2013.

 “We welcome how open the Authority have been in acknowledging the flaws in their method and their determination to correct it over the next few months. However this underlines the risks of adopting new measures that have not been tried and tested over time - the fact that CPIH appears to have been underestimated risks undermining confidence in national inflation measures. Consistency is key for schemes to assess their funding requirements, and for members to understand their benefits.

 “There is no getting away from the fact that all the different inflation measures produced by the government are focused on measuring complex macroeconomic effects. The ONS could really help employers and pension schemes by publishing instead a measure of how the cost of living for an individual in the UK increases each year."

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