ONS fights to avert confidence crisis in UK inflation data

UK national statisticians are fighting to avert a crisis of confidence in official data, responding to claims that the headline measure of inflation underplays the impact rising prices are having on the poorest.

The Office for National Statistics said on Wednesday that it would restart publication of detailed data on the inflation rates experienced by different types of households later this week. This analysis was suspended at the start of the pandemic because prices for many items, such as meals out or flights, were temporarily unavailable.

But the issue of who is hit hardest by rising living costs has taken on new urgency, with average inflation at its highest rate in 30 years in December and likely to rise above 6 per cent in the coming months, even if the government takes action to limit the jump in regulated energy prices.

The ONS came under fire last week from Jack Monroe, the food blogger and poverty campaigner, who claimed on Twitter that its headline figure “grossly underestimates” the reality of inflation for people with the lowest incomes, because prices had risen faster for basic food products than for premium versions.

Monroe, who has been invited to meet ONS officials, is marshalling volunteers including economists, retail analysts and ex-ONS staff to produce her own index of basic food prices.

Rival indices are proliferating and controversy over the real rate of inflation is complicating an already fraught wage-bargaining season, as trade unions argue for pay rises to compensate workers for higher living costs. Unite plans to produce its own “bargaining index”, which it claims will better reflect real living costs and employers’ ability to pay higher wages.

Mike Hardie, head of inflation statistics at the ONS, said in a blog that the agency could not yet answer the question of “what happens to the price of own brand versus branded baked beans”, although the ONS had “radical” plans to start using data sent directly from supermarket checkouts to gather millions of prices each month, rather than the current 180,000.

But Hardie said even big changes in the price of certain food items had only a small impact on the overall inflation rate, as they made up a very small part of average household spending.

The debate is much wider than the price of food. Inflation has at times been higher for people on low incomes because they tend to spend a higher proportion of their income on essentials such as fuel and food, the prices of which can fluctuate sharply. Hardie said this was the case in 2008-2009, although differences had historically been small.

Analysis by the Institute for Fiscal Studies think-tank, based on November data, found very little difference in the cost increases faced by households at opposite ends of the income distribution — because prices have risen fast for luxuries such as meals out and travelling, as well as for essentials.

But the IFS warned that the poorest tenth of households would be hit much harder than the richest tenth from April, if energy and other prices climbed as expected, because they spend almost three times as much of their budgets on gas and electricity. This would leave them facing an overall inflation rate around 1.5 percentage points higher than the richest.