The Honest Truth

It contains everything from a large loaf to a 
dining table 

Rob’s shopping basket keeps tabs
on inflation

THERE was consternation last week after the Government published its latest inflation figures.
The numbers are well above targets, raising fears the British economy is heading for a slump.
The inflation figures released are calculated by the Office of National Statistics (ONS), based in Newport in Wales. The team is led by statistician Rob Pike (right).
It’s his job to calculate the measure of inflation — the Consumer Price Index and Retail Price Index. The CPI is used by the Bank of England as its inflation target, while the RPI is used to calculate state benefits and pensions. 
Both are referred to as a “basket of goods”, containing the stuff we all like to spend our money on. Analysing how the cost of this basket of goods changes gives us and indication of the change in prices we pay in the shops.
Rob told Stevie Gallacher The Honest Truth about how the nation’s spending habits are measured.

WHY A basket?

We imagine a very large shopping basket full of goods and services on which people typically spend their money. 
The content of the basket stays the same throughout the year but, as the prices of individual products vary, so does the total cost of the basket. 
The CPI and the RPI measure the combined price changes of all the items, although if people spend more because they’re buying more goods that doesn’t affect the index.

HOW ACCURATE a measure is it?

On their own, the CPI and RPI aren’t intended to be a measure of the state of the economy. 
Change in the price of goods and services is just one aspect of the economy, although of course it’s of great concern to people right now. 
Other measures of the economy include gross domestic product (GDP), which measures economic growth, manufacturing and service sector output and employment.

WHO INTRODUCED the idea?

There were occasional official comparisons of food prices as far back as the late 19th Century but the Government started a continuous check on the cost of living in July 1914. The Board of Trade did a monthly inquiry into the retail prices of the principal items of working class family expenditure and published the prices each month. 
This index was accepted as an aid towards protecting workers from what they initially thought would be temporary economic consequences of World War 1.
In 1947 the Government introduced a new interim index of retail prices. This was based on a wider range of prices and for the first time used the idea of a basket of goods.

WHAT WAS in the original basket?

The 1947 basket included fresh fruit; rent and rates; clothing and footwear including a man’s three-piece suit; fuel and light including coal, gas and electricity; household goods such as wardrobes and sewing machines; household services including shoe repair; personal goods and services such as razor blades and hairdressing; motoring (but only in the form of petrol and a motor-cycle licence); other travel costs such as rail and bus fares; leisure goods including radios; leisure services such as radio licence and cinema admissions; alcohol sales and tobacco. 
Some of the items are still included in the basket today — a large white loaf, a dining room table, self-raising flour, pork sausages, back bacon, eggs, apples, potatoes, socks, rents, toothpaste, hairdressing, rail fares, tennis racquets and admission to football matches. 
Other items have disappeared over the years. These include rabbit — for eating, not as pets — mutton, corsets, table mangles, radios and gramophone records.

HOW IS the basket content decided?

We review the components every year, looking whether to add new products coming on to the market and drop older products.
Decisions on which new products to include are based on amounts spent on the item, the availability of prices for the item and whether other items already in the basket adequately represent the potential new item’s price changes.

WHAT’S THE shortest serving item?

Large sliced wholemeal loaf and liqueur (per nip) each lasted one year. Home-killed minced lamb, diet-aid drink powder, infant’s dungarees and crystal wine glasses all lasted for two years.
Powdered baby formula, herbal/ fruit tea-bags, plastic patio set, table lamp and a jigsaw for 3 to 5-year-olds were in for three years.

HOW MANY people work on the indexes?

We have a team of around 40 in the office who collect central prices and put together the consumer price indexes each month. Then there are 10 auditors spread across the country who check the prices. The collection of prices from shops is contracted out to a market research company.

WHAT HAVE been the biggest recent rises?

In the last 12 months we’ve seen large increases in petrol and diesel, which together have risen by 24 per cent over the year. Heating oil, which has risen by almost 88 per cent, electricity by 11 per cent ands gas by 10 per cent.
Food overall has risen by more than 10 per cent, with milk, cheese and eggs rising 19 per cent and meat 11 per cent.
The cost of education has risen by 13 per cent, largely due to higher university tuition fees.

WHY IS the RPI used as the “true” measure of the cost of living?

Independent “cost of living” indexes survey a narrower range of goods and services and in some cases select particular brands, which don’t always represent average price moves.
Many also omit certain categories of household spending in which prices are falling — such as clothing, electrical gadgets and furniture.
We maintain the true picture of consumer inflation is that revealed via the comprehensive surveys we perform.

ANY UNUSUAL or unexpected items in the basket?

I’m not sure anything is that unusual, the intention is to have a basket of goods and services that are representative of what people commonly buy, but depending on personal interests and perspectives some examples could be kiwi fruit, courgettes, fruit smoothies, mentholated cigarettes, the hire of a domestic steam wallpaper stripper, road tolls, home removal charges, internet subscriptions, kennel fees, leg waxing and marriage licences.

ANY RECENT additions?

The 2008 basket update included fruit smoothies to reflect interest in health drinks, muffins to better represent snack items in coffee shops and cafes, 20 bottle packs of lager to replace a lager stubbies item which was becoming increasingly difficult to collect prices for, and non-chart CD albums to represent the purchase of classic albums whose prices may move differently to chart CDs.

WHAT’S BEEN removed?

Removals in 2008 include washable carpets since spending on these was low and diminishing, TV repair services since reliability has improved and people tend to buy new models now, car steering lock devices as spending has decreased with improved security on newer cars, CD singles as music downloads have become more popular, and 35mm camera film with the rise of digital cameras.

DO POLITICIANS have a say over what’s in the basket?

No. Decisions on changes to the detailed items in the basket are taken within ONS. And the National Statistician is responsible for definitions and methodology. For wider issues, such as whether to include owner occupied housing, in the CPI we have to follow international guidelines and conventions.

ANYONE EVER complain about items included or not included? 

The trade association for distillers complained when we dropped gin a few years back.

WHAT MIGHT surprise us?

We collect around 120,000 prices every month to ensure we measure inflation accurately. And we collect most of these over a three-day period each month.

WHAT’S YOUR background?

I did a degree in Business Studies and then spent five years in management with a major food company before joining the Civil Service. I worked in a social security office for three years but left to join HQ after being hit in the eye by one of the claimants!

© All copyright D.C. Thomson & Co. Ltd., 2008