Have UK clothes prices gone up or down over the last 10 years? Most people would assume that the answer to this would be simple, just look at inflation. But not all inflation calculations are the same, they can use different formulas to calculate price changes and, as a result come to different conclusions. Most people know that the UK’s Retail Price Index (RPI) differs from the Consumer Price Index (CPI), as RPI includes housing costs in the form of council tax and mortgage interest payments, but the differences between the two indices are deeper than this. For example when you compare clothing and footwear prices over the last twenty years, both CPI and RPI show prices declining during the first ten years, but for the second ten years a clear divergence appears. The reason for this disparity comes down to calculation method. RPI uses the ‘Carli’ formula for around 30% of the prices it measures (including clothing and footwear), a measure that has previously been criticised for introducing an upward bias to inflation data. But even the initial decline is questionable! The Bank of England (BoE) have stated that annual CPI inflation may have been underestimated by up to 0.3% a year between 1997 and 2009 as a result of seasonal sales for clothing and footwear which saw discounts being captured by the data, but not the recovery back to normal prices as the sales ended. This led to a change in methodology being introduced at the start of 2010. With inflation at the top of the BoE’s tolerance threshold, the Monetary Policy Committee will need to make a judgement on how quickly they need to raise interest rates. Understanding these intricacies of inflation measurement is a critical part of their role.
David Hooker – portfolio manager. Insight Investment, a BNY Mellon company
This content is provided by Market Eye, BNY Mellon’s blog. You can register to receive Market Eye updates by using the subscribe function below
Past performance is not a guide to future performance.
Investment Managers are appointed by BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA) or affiliated fund operating companies to undertake portfolio management activities in relation to contracts for products and services entered into by clients with BNYMIM EMEA or the BNY Mellon funds.
For Professional Clients and, in Switzerland, for Qualified Investors only.
Any views and opinions are those of the author, unless otherwise noted and is not investment advice.
BNY Mellon take no responsibility, nor endorse any comments from third-parties which contain links to external websites outside of those of BNY Mellon.
Furthermore, this material does not constitute an offer or invitation to anyone in any jurisdiction to invest in any BNY Mellon product or use any BNY Mellon services where such offer or invitation is not lawful, or in which the person making such offer or invitation is not qualified to do so, nor has it been prepared in connection with any such offer or invitation.
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the corporation as a whole or its various subsidiaries.
This information has been prepared and approved by BNY Mellon Investment Management EMEA Limited. Issued in UK and Europe (excluding Switzerland) by BNY Mellon Investment Management EMEA Limited, BNY ellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Authorised and regulated by the Financial Conduct Authority. Issued in Switzerland by BNY Mellon Investments Switzerland GmbH, Talacker 29, CH-8001 Zürich, Switzerland. Authorised and regulated by the FINMA.
All information contained in this material is current at the time of issue and, to the best of our knowledge, accurate.
© 2017. BNY Mellon Investment Management EMEA Limited. All rights reserved.
This article was provided by BNY Mellon Investment Management and does not necessarily reflect the views of Citywire