The ONS has announced its latest changes to the basket of goods and services it uses to compile its influential CPI and RPI inflation indices. Into the basket come tablet computers, fees paid to dating agencies, and ‘teenage fiction’, and out go photographic film development charges and cable TV subscriptions. As well as adjusting the composition of the basket to reflect changes in typical household spending, there are also adjustments to the grouping of goods, and to their weights, which are reviewed every year. For example, DIY materials have switched group and large TV screen now have their own grouping. Food products have gradually lost their weights to reflect the fact that spending on food represents just over 10% of typical household budgets, compared with just under 20% a generation ago. Indeed, the average household now spends more on ‘eating out’ than cooking at home.
The Consumer Price Index (CPI) is calculated by tracking some 180,000 individual price movements of the 700 items included in the basket of goods and services bought by the ‘average’ UK household. Price movements are monitored in around 150 different geographical regions, including prices in inner-cities, suburbs and rural areas across the UK. Adjustments need to be made on a regular basis to ensure that the CPI and RPI remain broadly representative and hence remain useful for policy purposes, including the setting of interest rates.