Inflation index ‘has cheated us for years’
FAMILIES have been ripped off for decades by annual increases in bills linked to inaccurate inflation figures, experts warned yesterday.
The Office for National Statistics admitted its retail prices index (RPI) measure was inadequate and had been replaced.
This has profound implications for millions of Britons because RPI dictates how much household bills go up each year.
Yesterday the ONS said the measure had been swapped for the ‘improved’ RPIJ.
The ONS calculates inflation by looking the changing price of a representative sample – or ‘ basket’ – of around 700 goods and services.
RPIJ will be based on the same basket, but uses a different formula to calculate a final inflation figure – which turns out be significantly lower.
The ONS yesterday revealed the huge gap between the measures.
In February, RPI was 3.2 per cent, but RPIJ – published for the first time yesterday – was 2.6 per cent.
Over the past decade, prices have increased by 31.9 per cent according to RPIJ, but 38.1 per cent using RPI.
Since RPI was launched in 1947, the ONS has worked out average prices using the ‘Carli’ method. But RPIJ uses the alternative ‘ Jevons’ method.
Other countries that used the Carli method, such as America,
‘RPI now looks untenable’
Canada and Sweden, have axed it. Britain is the last to do so.
Controversially, however, RPI is still being used to work out annual increases in many essential household costs, such as water bills and rail fares.
An analysis by the Campaign for Better Transport revealed how train fares would be lower this year if RPIJ had been used instead of RPI.
Each January, train fares are increased in line with the previous July’s RPI plus one percentage point.
For example, a season ticket from Milton Keynes to London was £4,408 in 2012. This year, the same ticket costs £4,620. But it would have risen to only £4,562 under RPIJ, a saving of £58.
Stephen Joseph, chief executive of the Campaign for Better Transport, said: ‘ There are two main problems with the way Government calculates rail fares.
‘One is the policy of above inflation hikes, which needs to end, the other is the use of RPI, which now looks untenable.
‘Many regular train users would find themselves paying hundreds of pounds less each year if the more accurate RPIJ measure were adopted.’
The impact on water bills is simil ar. Like train fares, they are increased by a complex formula each year based on RPI.
The average water bill increased by £13 this year to £388, but it would have risen by £11 if RPIJ had been used. This difference would be hugely significant if applied over a period of many years.
A spokesman for Ofwat, the water regulator, said: ‘ We have committed to using RPI as the measure of i nflation up until 2020.’
Meanwhile, consumer prices index inflation (CPI) – which, unlike RPIJ, does not take mortgage payments or council tax into account – rose to 2.8 per cent in February. its highest level since May 2012. The Government’s target is 2 per cent, which has not been met since November 2009.