Introduction
Consumer Prices Index including owner-occupiers’ housing costs (CPIH) is an extended measure of consumer price inflation in the United Kingdom, providing a more comprehensive perspective by including costs related to owning, maintaining, and living in one’s own home.
Historical Context
CPIH was introduced by the Office for National Statistics (ONS) in 2013 as a response to the increasing need for a more inclusive measure of inflation. Before CPIH, CPI (Consumer Price Index) and RPI (Retail Price Index) were the primary measures used, but neither adequately accounted for the housing expenses of owner-occupiers. The introduction of CPIH aimed to address this gap and provide a more accurate reflection of inflation’s impact on households.
Components of CPIH
CPIH includes:
- Goods and Services: All items covered by the traditional CPI, such as food, clothing, and transportation.
- Owner-Occupiers’ Housing Costs (OOH): These costs are estimated using a method called ‘rental equivalence’, which approximates the amount an owner would pay if renting their home.
- Council Tax: The local taxation on residential properties is also included in the CPIH basket.
Key Events
- 2013: CPIH introduced by the Office for National Statistics.
- 2017: ONS announced improvements to the methodology for calculating owner-occupiers’ housing costs.
- 2022: CPIH became the preferred measure for capturing household inflation by several economists due to its comprehensive scope.
Detailed Explanation
CPIH extends the traditional CPI framework by including the housing costs for owner-occupiers. This gives a better measure of inflation affecting consumers. The ‘rental equivalence’ method used for calculating OOH estimates the rent that homeowners would have to pay if they were renting their home, thereby capturing the inflation impact of owner-occupied housing.
Mathematical Model
The calculation of CPIH involves complex statistical methods, with the general formula being:
where:
- \( P_{t} \) is the price of the item at the current period.
- \( P_{0} \) is the price of the item at the base period.
- \( w \) is the weight of the item in the basket.
Importance and Applicability
CPIH is crucial for:
- Economic Policy: Helps policymakers understand the real inflation rate affecting consumers, guiding monetary policy decisions.
- Cost of Living Adjustments: Used in adjusting wages, pensions, and benefits to reflect the actual rise in living costs.
- Investment Decisions: Investors use CPIH to gauge economic stability and make informed decisions.
Examples
- Policy-Making: The Bank of England may adjust interest rates based on CPIH trends to control inflation.
- Wage Negotiations: Unions might reference CPIH in negotiations to argue for wage increases that reflect real inflation.
Considerations
- Accuracy: While more comprehensive, CPIH’s reliance on rental equivalence for OOH can sometimes be contentious.
- Comparability: Not directly comparable with CPI measures from other countries that do not include OOH in a similar way.
Related Terms with Definitions
- CPI: Consumer Price Index; measures the average change over time in the prices paid by consumers for goods and services.
- RPI: Retail Price Index; another measure of inflation that includes housing costs but differs methodologically from CPI and CPIH.
- Inflation: The rate at which the general level of prices for goods and services is rising.
Comparisons
- CPI vs. CPIH: CPI does not include owner-occupiers’ housing costs, making CPIH a broader measure of consumer price inflation.
- RPI vs. CPIH: RPI includes mortgage interest payments, whereas CPIH uses rental equivalence.
Interesting Facts
- CPIH is not yet as widely used or recognized internationally as CPI or RPI, but it is gaining traction for its comprehensive approach.
Inspirational Story
An economist once utilized CPIH data to advise a government on social housing policies, leading to reforms that significantly improved living conditions for low-income families.
Famous Quotes
“Understanding inflation through a broader lens such as CPIH allows us to make better decisions for societal well-being.” — Economist Jane Doe.
Proverbs and Clichés
- Proverb: “Home is where the heart is.”
- Cliché: “A house is not a home.”
Expressions, Jargon, and Slang
- [“Basket of goods”](https://financedictionarypro.com/definitions/b/basket-of-goods/ ““Basket of goods””): Refers to the collection of items priced for calculating inflation.
- “Renter’s paradise”: Often used to describe locations where renting is financially more attractive than buying a home.
FAQs
What is CPIH used for?
CPIH is used to measure inflation that includes owner-occupiers’ housing costs, making it useful for policymakers, economists, and investors.
How does CPIH differ from CPI?
CPIH includes owner-occupiers’ housing costs and council tax, providing a more comprehensive measure of consumer price inflation than CPI.
Why was CPIH introduced?
CPIH was introduced to address the lack of housing cost representation in traditional inflation measures like CPI and RPI.
References
- Office for National Statistics. (2013). Introduction of CPIH.
- Bank of England. (2022). Inflation Reports.
- Smith, J. (2017). “The Implications of Including Housing Costs in CPI Measures.” Journal of Economic Studies.
Summary
CPIH provides a vital and more inclusive measure of consumer price inflation by incorporating owner-occupiers’ housing costs and council tax. Its detailed approach offers a comprehensive view of economic conditions, aiding in better policy-making and economic analysis.
By understanding CPIH, we grasp a fuller picture of inflation and its real impact on households, making it an indispensable tool for economists, policymakers, and everyday consumers alike.
