MNI POLICY: UK Stats Head Seeks Choreographed Switch From RPI

By David Robinson

     LONDON (MNI) - John Pullinger, the UK National Statistician, is firmly of

the view that RPI, a retail price index used as the reference point for

index-linked gilts, is badly flawed and he wants a "choreographed" move away

from it rather than making piecemeal changes to it.

     Pullinger gave evidence to the House of Lords Economic Affairs Committee on

Tuesday and the following are the key policy points he made:

     -Pullinger argued against correcting any single flaw in the RPI, with

National Statistics no longer seeking to improve the measure.

     "If I were to make a change I would want to change all the things that need

to be changed," he said.

     Among the many shortcoming in RPI cited by Pullinger were its coverage and

the way it reflects housing costs. He said all of these needed altering and that

if he sanctioned all of these changes it could turn RPI into the alternative

consumer price measure, CPI.

     -RPI is still being used as the reference point for inflation linked gilts

issued by The Debt Management Office (DMO). Pullinger, instead of taking the

'pure' line of arguing for a swift move away from RPI, instead backed a

"choreographed" approach to moving away from it, involving the DMO, the Treasury

and the Bank of England.

     "I would want to make .. changes so they don't have a destabilising effect

on markets," Pullinger said.

     -Pullinger's evidence raised questions over the whole process of

overhauling and improving UK statistics. He was asked whether he saw his role as

simply being to produce the best statistics rather than to worry about the

impact on financial markets and the public finances of statistical changes.

     He said that he interpreted his role "as producing statistics that serve

the public good."

     That means he takes into account the effect of changes that could create

economic harm but it is an approach that leaves him open to accusations of

blurring the lines between technical expertise and policy advice.

     -The move away from RPI does appear to have become mired in politics.

     One committee member, former top Treasury official Terence Burns, asked

Pullinger if decisions over RPI were being "taken on quite political grounds."

The Treasury is worried about lost revenue from an RPI switch, as the latter

runs higher than CPI by 0.7 basis points on average.

     Pullinger admitted that his situation was "definitely uncomfortable" adding

that "if we can find a way out of it no one would be more pleased than me."

     -The evidence session followed a recent similar session with Elizabeth

Truss, Chief Secretary to the Treasury, who said the fiscal costs of moving away

from RPI had to be considered and DMO head Robert Stheeman, who warned CPI

linked gilts could be worse priced because of weaker demand for them than RPI

linkers.

     Pullinger's evidence highlighted how messy the proposed switch away from

RPI is becoming, with the head statistician trying to pick a path through the

competing concerns of improving statistics and impacting debt markets and the

public finances.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

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