MNI: UK ONS: Virus To Cause Volatility In Upcoming Data

By Laurie Laird

     LONDON (MNI) - The lack of availability of services included in the basket

of items pooled to calculate the consumer price index will lead to volatility in

series underlying the Bank of England's inflation mandate, according to Deputy

National Statistician, Jonathan Athow. 

     Disruption caused by the virus and the shutdown of the U.K. economy will

also affect the measurement of key labour market and gross domestic product

data.

     The following are the key points from a briefing led by Athow on Wednesday.

     - The ONS has received Bank of England approval to impute elements of the

RPI in a similar fashion. In a letter to Athow dated May 1st, Deputy Governor

Ben Broadbent wrote that "none of the planned temporary changes ... were

fundamental to the coverage of basic calculation of the RPI" and thus not

"materially detrimental to the holders of relevant index-linked gilts."

     - Unlike RPI, the calculation of CPI is not covered by legislation, so the

ONS did not require government or Bank of England approval for the new measures.

However, the Bank's mandate to achieve price stability is defined as a 2% annual

increase in the CPI.

     - More than one-fifth of the items in the CPI basket are currently

unavailable, due to the economic shutdown, including drinks in bars, haircuts

and cinema admissions.

     - In an effort to maintain a consistent time series, statisticians will

impute the price of the unavailable items, based on costs of similar items.

Where substitutions are unavailable, statisticians will apply the movement in

the all-items CPI to the price of missing items.

     - The statistical fix could lead to "unusual ... and volatile" movements in

the CPI, according to Athow, who declined to comment on whether the measures

could skew the price measure higher or lower. "That's unknowable at the moment."

     - Calculations are further complicated by unusual movements in prices for

available items usually affected by the virus, such as airfares. Statisticians

were unable to quantify the weight of such irregular items in the CPI basket.

     - Mindful of the need for transparency in such a key economic data series,

the ONS aims to produce a slimmed-down CPI series that excluded the 20.2% of

items for which prices are not available, possible alongside the April data on

May 20. "We want to be very transparent about the decisions we're making," said

Athow.

     - With regard to labour market data, furloughed workers will be considered

to be employed in January-March employment report due for release on March 19.

However, earnings growth could be hit by the Job Retention Scheme, which

provides furloughed workers with 80% of their salaries, although some may

receive top-up payments from employers.

     - Employment measures could also be compromised by a reduced sample size,

according to Athow. The labour force data is typically collected by face-to-face

interviews, now impossible during the national lockdown. Statisticians have

experienced reduced response rates when attempting to conduct such interviews by

telephone.

     - Output lost by furloughed workers will be calculated at zero in the

output measure of first quarter GDP data scheduled for release on May 13,

although the data cover just a short period of the economic shutdown, which was

announced on March 23. The income accruing to furloughed workers through the job

retention scheme will be deducted from the income measure of GDP.

     - GDP data could also be affected by reduced response rates from companies

that typically supply data used in the calculation of the series. Statisticians

were unable to provide a quantitative estimate of the fall in the sample size,

but noted that construction companies had been particularly difficult to

contact.

     - Statisticians have not experienced a significant decline in response

rates when collecting retail sales data, despite the closure of most retail

outlets from March 23.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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