Each year the Office for National Statistics assesses the ‘basket of goods’ it uses to measure inflation in the UK economy. This basket stands in as an approximation of the average spending habits of UK consumers, and through measuring the changes in price of the items within it, the ONS is able to show how much prices have increased/decreased each month, and through this release its monthly Consumer Price Index figure. In order to make this assessment as accurate and representative as possible, the items within the basket are reviewed each year.
This year the headline additions have been non-dairy milk, gin, cycling helmets, jigsaws, and children’s scooters. Each of these additions carries its own reasoning behind it. The inclusion of non-dairy milk, products such as almond-milk and soya-milk, is due to the growing popularity of the ‘free-from’ food category. Gin meanwhile, returning to the basket after thirteen years, is included to help interpretation of the spirits section of the basket, where, because of discounting, prices are volatile. The increase in expenditure on gin, and the growth in the number of small distilleries makes this inclusion an attempt to make the category more representative. Likewise cycling helmets have been included due to the popularity of cycling in the wake of British sporting successes in the Olympics and the Tour de France.
The inclusion of children’s scooters shows a different aspect to the basket selection process. Since the CPI is measured each month by ONS workers who either visit stores, or contact shopkeeper by phone or over the internet to check prices, products need to be available all year round in order to track changes in price. Children’s scooters are replacing children’s swings, which are dropping out because of their limited availability in stores over the winter months. Since the weighting for each category is based on the proportion spent on the goods within it in the economy as a whole, the choice of which products to measure therefore becomes a combination of picking something representative of consumer habits but which is also available all year round.
As we can see from these changes, filling the basket of goods is not an exact science, but an attempt, through constant revision, to create a bellwether for price inflation as representative of consumer habits as possible. This year’s changes are just the latest part in this ongoing refinement. Alongside the products already mentioned, men’s base layer tops and cough liquid has been added, whilst basic mobile phone handsets have been removed, smartphones winning out at their expense. These changes have been hailed by the ONS as a sign that hipster spending habits have entered the mainstream, vegan milk, cycling, and gin cocktails all covered by this year’s additions. With the inclusion of the men’s base layer however, perhaps it better shows a switch towards healthier lifestyles in the UK.
A more significant change will be the elevation of the CPIH measure above the CPI as of the 21st March in the inflation release. The CPIH includes housing costs on top of the regular CPI inflation measure, and should therefore provide a better assessment of fluctuations in the cost of living. The ONS announced today that it would be including council tax within this measure, and has backdated this into the historical CPIH data in order to modify its weightings. From March we should therefore get a clearer image of how costs have changed over time.
Anoush Darabi, Junior Analyst, BRC