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Retail Price Index
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Retail Price Index

Since the government switched the basis of inflation updating of pensions and benefits from the RPI to CPI and the boost in inflation which is now running at more than double the permitted rate, retail price measurement has become sexy.

The ONS announced in March 2011 that it would stop collecting prices for Lager 4packs, fleeces, mobile phone downloads, rose bushes, and fags from vending machines, and instead check the prices for iPhones, smartphones and apps, sparkling wine, casual shirts, dating agency fees, dried fruit and oven-ready joints. Obviously the ONS thinks we are casual and trendy. But it will also collect prices on home entertainment centres with 32 inch screens (or larger) separately from conventional TV sets.

This is part of the annual revamp that the ONS carries out into what is measures. Last year saw the official end of prices for coke, lipstick, hair dryers, pitta bread, disposable cameras, baby food and trainers and in came lip gloss, hair straighteners, cereal bars, garlic bread, liquid soap, baby milk powder, allergy treatments and blu ray discs.

Each item should represent at least £400 million of annual consumer spending or be representative of a particular type of spending, such as power drills or acoustic guitars.

In 2009 they were just as brutal. Out went lamb chops, first-generation mp3 players, video rental, wine boxes, and shag pile carpets. In came rosť wine, rotisserie chicken, Freeview boxes, mp4 digital entertainment players, online DVD film rental, hardwood flooring, Parmesan cheese, double cream and free range eggs.

'Fast Fashion', the retail system of very quick turnaround in the production of small quantities of new apparel lines, had caused the ONS a major problem for some years, because the short life of fashion lines made it hard to calculate 'real' inflation. There were too few items left that did not change. Comparisons were made harder because the new lines were regarded as 'quality enhancements' and excluded from inflation adjustments. In fashion outlets the ONS now measures prices changes across types of products rather than individual

Out goes

15 March 2011 Last updated at 10:47

Smartphones and apps added to inflation basket Click to play

Smartphones and their apps have been added to the typical basket of goods used to calculate inflation.

Dating agency fees have also been included for the first time to reflect the rising use of these websites, the Office for National Statistics said.

The ONS updates its 650-strong basket of goods and services annually, to better reflect public spending habits.

Consumer price inflation is currently running at 4%, double the Bank of England's target of 2%.

CHANGES TO INFLATION BASKET

In

Out
Smartphone handsets and their apps Mobile phone downloads
Dating agency fees Vending machine cigarettes
Hair conditioner Rose bushes
Oven-ready joint Pork shoulder
Dried fruit Vet fees for spaying a kitten
Sparkling wine Hardboard
Medium density fibreboard (MDF)  
Craft kit  
   

Calculations

The shifting of goods and services in and out of the basket gives an insight into the changing nature of shopping habits and new technology in the UK.

The ONS collects about 180,000 separate price quotations of this basket of items in 150 areas of the UK.

These are then used to calculate the Consumer Prices Index (CPI) and Retail Prices Index (RPI) measures of inflation.

Smartphone applications have replaced mobile phone downloads, such as ringtones and phone wallpaper, in the ONS's estimate of a typical shop.

"Many of these new items show the way technology is changing our lives. Powerful smart phones and the applications that run on them have become essential for many when communicating or seeking information," said ONS statistician Phil Gooding.

"Likewise, increasing numbers of people now seek a partner via internet dating sites."

How our basket has changed

Also added to the 2011 basket were sparkling wines and oven-ready joints, with vending machine cigarettes and pork shoulder being taken out.

With many households setting up home cinema systems, the ONS will collect the prices of televisions with screens bigger than 32 inches separately from the cost of other sets.

The ONS ensures that items or distinct markets where consumers' expenditure exceeds about £400m a year are explicitly represented in the basket, unless adequately represented by other items.

Where spending on items falls below £100m a year, there should be good reason for their continuing inclusion in the basket, the ONS said.

For example, while spending on acoustic guitars and power drills is relatively low, both are included in the basket to represent wider markets, namely musical instruments and electrical tools.

Smart phones, apps and dating agency fees have been added to the basket of goods the government uses to calculate the cost of living.

The new additions show the importance of the burgeoning digital economy. The basket is designed to reflect what Britons really spend their money on, enabling the government to calculate how rises in prices are affecting living standards.

Sparkling wines are being added, suggesting that the UK is experiencing a less austere climate than some claim. Television prices are being collected differently to separate out TVs larger than 32 inches - reflecting the rise of home cinema systems.

On the way out to make way for the new additions are vending machine cigarettes, as well as pork shoulder joints. The ONS said the latter is being replaced by oven-ready joints, as people move towards more prepared foods.

Dried fruit has come in for the first time, while women's fleeces are out. Hardboard is being replaced by MDF.

The Office for National Statistics collects 180,000 prices every month of 650 goods and services. Changes in the prices are used to compile the official measure of inflation, the Consumer Prices Index (CPI).
"Many of these new items show the way technology is changing our lives. Powerful smart phones and the applications that run on them have become essential for many when communicating or seeking information. Likewise, increasing numbers of people now seek a partner via internet dating sites," said ONS statistician Phil Gooding.

The ONS updates the list of goods included once a year.