CPI could see housing-centric overhaul

In an independent review, Johnson said that the inflation rates experienced by different households – by rich and poor, by pensioners and those of working age – are likely to be markedly different.

Johnson has argued in favour of CPIH, which was introduced in 2013 and includes a measure of owner occupiers’ housing costs using a rental equivalence method. He stated that it is otherwise identical to the CPI and is a "good, comprehensive measure of price change in the household sector".

According to Johnson, CPIH more effectively takes into account the fact that households might choose to substitute goods and services whose price rises slowly in the place of goods and services which become more expensive more quickly.

He added:

"The inclusion of mortgage interest payments is an obvious immediate attraction to the payments approach. Rising interest rates make those with mortgages worse off by increasing the costs they face. To many, not including this in an inflation measure seems perverse."

However he noted the difficulty in the idea that one measure of inflation could tell us how much costs are changing for all different households.

Johnson concluded by saying:

"There is an unhelpful proliferation of price indices in the UK at present. The current situation is causing confusion, and as a result many users are still using the RPI, a statistic that is no longer fit for purpose.

"CPIH provides a good estimate of price changes across the economy. It should be the main headline index produced by ONS. In addition, ONS would better address user needs by publishing a set of measures on an annual basis to provide more complete information on the change in costs households face to maintain their standard of living.

"These should be published for specific groups of the population and it should be made clear what the measures of income are with which those measures should be compared. Such a set of measures would inform users and enhance the debate around the cost of living."

The UK Statistics Authority is expected to launch a consultation this summer, before making its final response later in 2015.