RPI: what does the future hold?

Fundamental change to RPI is needed according to the majority of attendees at a seminar held by LCP on the future of price indexing.

The issue was being explored by LCP following the publication of a House of Lords report earlier this year recommending some changes to inflation measures and gilt issuance.

Polling of the seminar audience revealed the strength of demand for changes to be made to RPI. 69% think that RPI needs to change from its current form in the next 2 years. 91% of the audience thought that the government should immediately switch to CPI for future Gilt issuances.

Jonathan Athow, Deputy National Statistician at the ONS gave the keynote talk, outlining the key problems with using RPI. The complex mathematical formula that underpins it and the treatment of housing costs are the key issues that impact the accuracy of the index and bringing its use into question.

Alex Waite, Partner at LCP, commented: “It’s clear that there are a lot of issues with using RPI as a measurement. We would welcome clarity on the future of RPI as soon as possible to assist with pension schemes planning their de-risking journeys. There are some actions that schemes can take but should as a priority review their approach to inflation hedging.”