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--Bean: Ball In Treasury's Court Over Move From RPI
By David Robinson
LONDON (MNI) - It is up to the UK Treasury to end the impasse over the
shift away from the discredited retail prices index (RPI) and on to a consumer
prices index, Charles Bean, a senior official at the Office for Budget
Responsibility and former Bank Of England (BOE) Deputy Governor told MNI in an
Bean was clear that RPI cannot be reformed and that the Treasury needs to
drive the move away from it.
"RPI is fundamentally a flawed statistic. It fails one of the most basic
requirements of any sensible price index," Bean said.
If prices go up and then come back down to where they were originally the
RPI shows a positive inflation rate over the whole of that period, whereas Bean
said "Any price index .. should have the property that there has been no
A recent round of evidence from top statistics, Debt Management Office
(DMO) and Treasury officials to a parliamentary inquiry on the use of RPI
revealed a plethora of views over whether to reform RPI, whether to keep using
it for debt issuance and confusion over who should make the next move.
RPI's main problem lies with the mathematical formula used to calculate RPI
and formula change could be costly for the Treasury due to claims from holders
of some RPI linked debt.
"If you did that it would constitute a fundamental change in the index. The
RPI, there are always tweaks to it, but there are some gilt issues where if the
RPI is re-defined in a fundamental way then the government has to offer to buy
the stuff back," Bean said.
It is up to the BOE to determine whether a price index alteration amounts
to a fundamental change and Bean used to chair the relevant committee that would
make that decision.
The Office for National Statistics (ONS) and the associated statistics
authorities have supported a switch away from RPI to CPIH, a consumer price
measure with a housing element. The recent evidence to the House of Lords
Economic Affairs Committee, however, saw some officials focus on the hurdles to
Robert Stheeman, Chief Executive Officer of the Debt Management Office,
warned that moving inflation linked gilt issuance from RPI to a CPI measure
would come at a cost to the public finances because of market fragmentation.
"If you had the situation .. where demand for RPI heavily outweighs demand
for CPI, it is very likely that we would achieve a poorer price for CPI-linked
issuance than we would for RPI-linked issuance," Stheeman said.
Chief Secretary to the Treasury Elizabeth Truss suggested that
statisticians should do more work on improving RPI.
--TREASURY MUST LEAD
Bean, however, is crystal clear that is up to the Treasury, as the relevant
government department, to take the lead and that delaying a switch because it
could come at a cost would amount to accepting indefinite delay.
"I think the ball is very clearly in the government's court here. It is not
up to the ONS. The ONS made very clear their views about the merits and demerits
of the indices," Bean said.
"I think at some point if you are looking at indexed debt you have to move
over to CPI, or CPIH. You can decide whichever is preferred out of those two and
that might mean some temporary slight increase in the cost of finance," he
"If you don't make that step you never change .. you always say there is
this near-term cost," Bean said.
--MNI London Bureau; tel: +44 203-586-2225; email: firstname.lastname@example.org
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