The collection of data about the economy is possibly not the most exciting element of economics however it is one of the most significant since, without accurate data, the Government and the Bank of England are unable to accurately assess the state of the economy and hence manage the economy.
Last week there were two interesting developments in the statistical world. The first was the announcement of two new measures of inflation which might shortly replace the Consumer Price Index (CPI) which previously replaced the Retail Price Index (RPI). The new measures are CPIH – the consumer prices and housing index – and HHI – the household inflation index which aims to reflect the costs that households face so includes interest payments as well as the prices of goods and services. It is possible that CPIH might soon replace the CPI as the indicator used by the Bank of England. It is likely that CPIH will be slightly above CPI since housing costs tend to exceed the average rate of inflation. Therefore, if the measure is adopted, it is possible that the 2% target will change as well.
The other development involved an Old Brentwood, Sir Charlie Bean, who was interviewed on Radio 4 on Thursday. He was previously Deputy Governor of the Bank of England, and is now head of independent review of economic statistics, set up by the Chancellor of the Exchequer after problems with some government data, leading to many revisions.. His view is that economic data has not taken into account the changes which have taken into account the way the digital economy has changed we operate. For example, a few years ago, when I booked a holiday, I would have gone to a travel agent and booked my holiday through them, paying them a commission which would have been counted in the UK’s GDP. Today I will go online and book my own flights and then go to Airbnb to book my accommodation. I might even avoid eating in restaurants and, instead, try one of the new schemes to eat in private homes. Similarly the way I obtain my home entertainment has changed – no longer do I buy CDs (or gramophone records!) but download music and, similarly, do not buy DVDs but use catch-up services for my TV viewing. Not all of these transactions will be included in the GDP and Sir Charlie believes that the inclusion of such transactions might add as much as 0.66% per year to the UK’s GDP.