Weekly Roundup, 4th May 2020

Weekly Roundup 200504

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4 Responses

  1. Avatar Al Cam says:

    Re inflation, as you may imagine ONS are well aware of these issues and below is extracted from the latest inflation report (for March):

    “There will inevitably be challenges around some of our collection activities, as approximately 45% of the CPIH basket is physically collected in stores across 140 locations in the UK. The remainder is collected by ONS staff from online sources and administrative data provided by external suppliers.
    The price collection for this publication, reflecting March prices, was largely unaffected by recent developments. However, in a small number of detailed categories, the number of price quotes used in constructing the indices is less than half the number used in February. These sections are identified in relevant tables in the accompanying dataset, for example in table 7.
    The collection issues increase in subsequent months and we have been planning for these. Before we release the April figures on 20 May, we will publish an article which will describe both the changes we have made to our data collection procedures and the methodological changes needed to adjust for missing prices where products are not available and services stopped during the lockdown period.”

    No sign yet of the promised article – but it could make interesting reading.

  2. Avatar Al Cam says:

    Some clues might be given by the online price change for high-demand products (HDP) that the ONS are currently publishing weekly at Section 6 of: “Coronavirus, the UK economy and society, faster indicators”, see
    https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/conditionsanddiseases/bulletins/coronavirustheukeconomyandsocietyfasterindicators/latest

  3. Avatar Al Cam says:

    Just found this – which was published yesterday. I have not yet had a chance to read it in any detail, but the salient points I have gleaned include:
    a) For items/services no longer available:
    “For unavailable items, where consumers can no longer access the market because it has effectively been shut down under current movement restrictions, we aim to make an imputation that has no impact on the all-items index, so that the calculation reflects only the price movements of those goods and services that consumers can purchase.”
    “There are 92 items in our basket of goods and services that we have identified as unavailable for the April 2020 index (see Annex B), which accounts for 16.3% of the CPIH basket by weight. The list of unavailable items will be reviewed on a monthly basis.”
    b) An extended form of web scraping will be used in lieu of shopping visits to collect prices for available items;
    c) For under-sampled available items:
    “For available items that we have not been able to collect, we aim to make an imputation that reflects the price movement that we have missed by not being able to collect the data. Where a sample is less than 20% of its usual size, we will review on a case-by-case basis. In extreme cases, we may consider replacing the data with an imputation. An imputation will also be made for categories in which it has not been possible to collect any price quotes at all. The imputation will be based on the most appropriate choice of:
    – imputing from the index immediately above it in the classification structure
    – imputing based on the price movement of a similar item
    – carrying forward prices”

    Full report is available at:
    https://www.ons.gov.uk/economy/inflationandpriceindices/articles/coronavirusandtheeffectsonukprices/2020-05-06

  4. Avatar Al Cam says:

    April inflation figures release today.

    In summary:
    a) inflation numbers have dropped quite significantly versus a year ago;
    b) the impact of the unavailable items whilst not trivial is not huge and the official way they have been accounted for may over-estimate inflation;
    c) revised spending patterns for available items could have at least as significant an impact as missing items and this is not accounted for in any way (positive or negative) in the official figures

    For monthly report see:
    https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/april2020
    Things that I noted are:
    “For April 2020, in addition to the 90 items, we identified a further 15 items where the proportion of price quotes collected were below 20%. For most of these items, we based the price movement on the collected prices. However, for a small number, we made the decision to impute their price movement as the collected prices were uncharacteristic for those items.”
    and also
    “Overall, the 90 imputed items in the CPIH had a downward contribution of 0.17 percentage points to the change in the CPIH 12-month inflation rate.”
    Another thing I noted from this report was that
    “the Bank of England must make a determination on any changes to the coverage or basic calculation of the RPI that we propose, to establish whether such a change “constitutes a fundamental change in the index which would be materially detrimental to the interests of the holders of relevant index-linked gilts”. We have shared our plan with the Bank of England, and they have determined that none of the planned temporary changes outlined “were both fundamental changes to the coverage or basic
    calculation of the RPI, and also materially detrimental to the holders of relevant index-linked gilts”

    And, for an alternative approach (ie different to the official agreed method), where the weights are adjusted to remove unavailable items and/or updated to account for some revised expenditure patterns (just fuels and lubricants) in the overall inflation calculation, see:
    https://www.ons.gov.uk/economy/inflationandpriceindices/articles/priceseconomicanalysisquarterly/may2020
    And the key things I noted from this report are:
    “Compared with the official CPIH series, an experimental series that updates the CPIH basket to remove unavailable items leads to an annual growth rate 0.1 percentage points lower than the official rate, at 0.8%.
    Compared with the official CPI series, an experimental series that updates the basket to remove unavailable items leads to an annual growth rate 0.2 percentage points lower than the official rate, at 0.6%.”
    and
    “Modifying the CPIH and CPI baskets further to account for changes in fuel consumption results in an annual rate in line with the official rates, at 0.9% and 0.8% respectively.”

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Weekly Roundup, 4th May 2020

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