The ONS’s inflation measurement change isn’t ‘new’

The way we measure inflation is changing, and there could hardly be a less crucial time for it to do so. The ONS will be updating the method for collecting individual prices from supermarkets, and will also publish new figures on inflation rates for different types of household.

The anti-poverty campaigner Jack Monroe has tweeted that the ONS ‘have just announced that they are going to be changing the way they collect and report on the cost of food prices and inflation to take into consideration a wider range of income levels and household circumstances’. But Monroe, who hope that the new metrics will show that inflation is hitting poorer families harder, will be disappointed.

On Friday, the ONS will be resuming publishing data breaking down inflation for different types of household. The metrics are broken down by income, expenditure, housing tenure, retirement status, and the number of children.

The last release of these figures were in February 2020, then the publication was suspended due to Covid. The past reports have also not shown large differences in inflation rates between different types of household, including income groups. In most cases the gaps have only been a few tenths of a percentage point.

There is a widespread assumption that recent inflation has hit poorer households worse, mainly because they spend a larger proportion of their income on food and, especially, domestic energy bills. Friday’s data will shed more light on this.

However, the rise in inflation has been far broader. There have also been large increases in the prices of cars, motor fuel, holidays, recreation, household goods, and hospitality — all areas where richer households typically spend a larger proportion of their income.

The ONS updating the way that data on shop prices are collected isn’t really news either. Currently, these are mainly drawn from surveys by market researchers. In future, the ONS plans to make more use of a much larger sample of electronic data based on real transactions at checkouts.

This method should be more accurate, but this change is part of a long-term transformation programme, which despite being ‘just announced’ was included in a briefing published in November last year.

It is also important to understand that the impact on the official measure of inflation could go either way. My own guess is that the current method results in inflation being over-estimated.

This is because the prices actually paid will often be lower than the data collected by an ONS representative walking round the shop. Real customers will switch to cheaper alternatives if one item is more expensive, take advantage of special offers, and shop around.

There are some factors that might pull in the other direction. When prices are high, poorer people might only be able to afford smaller packs, where the unit cost is higher. Properly measured, this is an additional type of inflation, sometimes known as ‘shrinkflation’.

The third change planned by the ONS is to improve their information on which goods and services are bought by each household types. This is also a continuous process — the basket of goods and services is frequently reweighted — and not the result of lobbying by activists. The better availability of granular data, due to new technology, is the real driver here.

That said, Monroe and others are right to draw attention to the additional pressures faced by poorer households. Even if inflation rates are not much different now, the main risk in the coming months is likely to come from energy prices — and especially what happens to the Ofgem price cap on domestic bills in April. This could indeed hit those on lower incomes particularly hard. Poorer households are also unlikely to have large savings that they can dip into to maintain spending during a temporary squeeze.

This means that, even facing the same rate of inflation, the living standards of poorer households may be at much greater risk when prices surge. But there is still little evidence that inflation itself is now much higher for poorer people.