Dear Radstatisticians,
A mathematician colleague needs stats. advice but doesnt use email;
hence my intervention. He serves on a committee concerned with
improving the measure of inflation and has done a lot of work on the
different ways that RPI and CPI are calculated. I believe at least one
RSS member is on the committee, someone from ONS and some employer and
TU reps.
Apart from the different baskets of goods/services used in the two
measures, a major difference is that RPI uses an arithmetic mean and
CPI a geometric mean. The former takes the mean of quantities (sum/n),
while the latter is sum/nth root. As my colleague understands it, this
means the CPI method assumes that changes in future purchasing
behaviour (towards selecting cheaper goods) can be predicted by price
rises whereas RPI reflects past purchasing behaviour (which has
already shifted in response to price changes). He argues there is no
justification for using the geometric mean since both measures take
account of behavioural response.
I know that ONS are working on a better measure, especially in terms
of including housing costs, but they intend to continue using the
geometric mean and this is what my colleague is challenging. He would
value some help from a statistician on this issue. Could someone
either confirm or disagree with what he says; and if agreeing, provide
a reference he could use to support what he says.on the committee?
best wishes
Jay
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