Posted on by Elizabeth Jones

What’s in and What’s out?

The rate of inflation in the UK is measured using the Consumer Prices Index (CPI). This is made up of a basket of goods and the ONS updates this ‘basket’ each year to ensure it is representative of what the average UK household buys. The basket contains 700 items, with 180,000 individual prices collected each month.

In recent years, items such as lip gloss have been added to the basket of goods and in the latest adjustment, the ONS has added tablet computers, amongst other things. This is a market that has seen enormous growth. It has been added to the basket as a means of giving a more accurate representation of the price changes faced by the average consumer. The ONS has made it clear that items are not added simply because they are new or removed simply because spending on them has fallen.

‘In each of these cases, the item has not been added because spending has increased or because the product is new on the market … It is purely as part of the rebalancing of the basket to improve its representation of overall price change.’

It is essential that these changes are made each year, as consumer buying habits do fluctuate considerably. One area in particular has been consumer responses to changes in technology. For example, developing and printing colour film has been removed as, with the development of digital cameras, this is no longer reflective of what a representative household spends its money on. Further to this, some items that have previously been used in calculating the RPI have now been added to the CPI, again to give a clearer picture of household spending in the UK. The following articles consider what’s in and what’s out.

Teenage fiction and iPads now in official UK shopping basket Guardian, Julia Kollewe (13/3/12)
Tablet computers added to UK inflation basket BBC News (13/3/12)
New items used to calculate inflation BBC News, Emma Simpson (23/3/12)
Tablet Computers Enter ‘Inflation Basket’ Sky News, Darren Morgan (ONS) (13/3/12)
Inflation basket of goods 2012: full list of what’s out and what’s in Guardian, Simon Rogers (13/3/12)
Tablet computers added to inflation basket of goods Telegraph (13/3/12)
How has the UK’s ‘inflation’ basket has changed? Metro, Ross McGuinness (27/3/12)
iPad and Galaxy added to inflation index Financial Times, Norma Cohen (13/3/12)

Questions

  1. What is the difference between the CPI and RPI? Which is usually higher? Explain your answer.
  2. How is the CPI calculated and hence how is inflation measured?
  3. What impact has technological progress had on the basket of goods that the representative household purchases? Do you think that technological progress make it more or less important for the basket of goods to be reviewed annually?
  4. Do you think products such as the iPad should be included in the CPI? Are they truly representative?
  5. In the second Guardian article, you can access a list of the products that are ‘in and out’. Is there anything on there that you think should be in or that should be out? Be sure to justify your answer!