Retail Prices Index

Treasury written question – answered on 4th May 2004.

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Photo of David Willetts David Willetts Shadow Secretary of State for Work and Pensions

To ask the Chancellor of the Exchequer what assessment he has made of the effect of applying hedonics methodology to the Retail Prices Index; what plans he has to make further such adjustments; and if he will make a statement.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

The information requested falls within the responsibility of the National Statistician, who has been asked to reply.

Letter from Colin Mowl to Mr. David Willetts, dated 4 May 2004

The National Statistician has been asked to reply to your recent Parliamentary Question asking what assessment has been made of the effect of applying hedonics methodology to the retail prices index and what plans there are to make further such adjustments. I am replying in his absence. (170101)

Technical issues such as hedonic methodology fall within the remit of the National Statistician. Our estimate is that the change to hedonic methods has had a minimal effect on the Retail Prices Index (RPI) with less than a 0.05 percentage point reduction on the annual rate of change.

The Office for National Statistics (ONS) has examined the possible use of hedonic methods for a number of items in the RPI, but has made the decision to implement the method only in those cases where it represents a significant improvement in methodology. This was the case for personal computers and digital cameras, where hedonic methodology has been implemented. However, for other goods, such as televisions, DVD players, still cameras and washing machines, the method has not shown conclusively to be an improvement and so has not been implemented.

In the future, ONS will continue to examine the use of hedonic methods on a case by case basis and intend to investigate their use for laptop computers and digital camcorders. We are not planning a blanket implementation of hedonic methods, but intend to use them only where they are proven to give a real improvement in methodology. This is likely to be mainly for high technology, fast-developing goods newly entering the RPI basket. Such goods are the most common subjects of hedonic methods in the consumer price indices of other developed countries.

Further details can be found in Adrian Ball's article 'The Introduction of Hedonic Regression Techniques for the quality adjustment of computing equipment in the Producer Prices Index (PPI) and Harmonised Index of Consumer Prices (HICP)', Economic Trends, vol No. 592, or by accessing the National Statistics website: http://www.statistics.gov.uk/CCI/article.asp?ID=290&Pos=&ColRank=2&Rank=208

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