LONDON (Reuters) - Britain’s Chancellor Philip Hammond said on Tuesday he would be happy to hear from the country’s statistics agency about reforming the discredited, but still widely-used, retail price index gauge of inflation.
RPI is used as a benchmark for inflation-linked government bonds, rail fares, student loans and some private pensions, despite its replacement by the generally lower consumer prices index (CPI) as Britain’s main gauge of inflation 15 years ago.
While the Office for National Statistics (ONS) has deemed RPI, which dates back to the 1940s, a “very poor” measure of inflation, the government has shown little enthusiasm for issuing debt linked to CPI rather than RPI because it wants to avoid fragmenting the market.
That in turn has put pressure on the ONS to reform RPI — something that it had previously ruled out on the grounds that the methodology was too outdated.
“It would be for ONS to initiate, and they have not initiated any such discussions with me,” Hammond told a committee of members of parliament from the upper House of Lords.
“I have had no such approach but I am sure that the ONS, should it wish to do so, would find its way to my office relatively easily and I’d be very happy to hear from them if they wished to talk me.”
About a third of the stock of British government bonds comprises RPI-linked debt.
Problems with RPI include an outdated formula used in its calculation, plus the inclusion of house prices and mortgage interest payments, the ONS has said.
Annual RPI inflation stood at 3.2 percent in July, compared with 2.5 percent for the CPI gauge targeted by the Bank of England.
Reporting by Andy Bruce and David Milliken; Editing by Gareth Jones