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Inflation Figures

Volume 456: debated on Friday 2 February 2007

To ask the Chancellor of the Exchequer what his Department’s estimate is of the rate of (a) household inflation, (b) single pensioner household inflation and (c) pensioner household inflation. (116944)

The information requested falls within the responsibility of the National Statistician, who has been asked to reply.

Letter from Karen Dunnell, dated 2 February 2007:

As National Statistician, I have been asked to reply to your recent Parliamentary Question asking for an estimate of the rate of (a) household inflation, (b) single pensioner household inflation and (c) pensioner household inflation. (116944)

Retail Prices Index (RPI) is defined as an average measure of change in the prices of goods and services bought for the purpose of consumption by the vast majority of households in the UK. The Office for National Statistics (ONS) has recently published the RPI for December 2006 as 202.7, giving a percentage change over 12 months of 4.4%.

The weights for the RPI explicitly exclude data on households where the head of the household is retired (at least 65 years of age for men and 60 years or more for women) and economically inactive, and where at least three quarters of the household’s income is from state benefits. Although no general “pensioner household” index exists, separate indices are produced for one-pensioner and for two-pensioner households whose expenditure is excluded from the RPI weights, i.e. those who rely on state pensions and benefit for at least 75% of their income. This roughly relates to around 20% of all pensioners (there are very few private households consisting solely of three or more pensioners): These indices use the same price data as the RPI and are only published for quarters, rather than months. They make no allowance for the fact that pensioners may shop in different outlets and therefore experience different prices.

The one-person pensioner households index for the fourth quarter of 2006 stands at 176.6, a change of 5.7% over 12 months.

The two-person pensioner households index for the fourth quarter of 2006 stands at 179.2, a change of 4.4% over 12 months.

The corresponding value for the RPI for the fourth quarter of 2006, stands at 201.4, a change of 4.0% over 12 months.

The main differences from the RPI in the construction of the pensioner indices are as follows:

section weights are derived from information on expenditure by one-pensioner and two-pensioner households respectively;

canteen meals (including state school meals) and all housing sections are excluded;

Other items are also excluded, including NHS prescription, dental and eyesight test charges which are not paid by pensioners. For rail and bus fares, special pensioners' rail and bus fare indices are substituted for the normal index household indices to allow for fare concessions available in some areas.

The exclusion of housing sections was made on the grounds that the price indicators used in the all items RPI would not be appropriate and would overstate the price increases experienced by these pensioners as they would mostly be cushioned against some rises by rebates. Also, it would be technically difficult to compile separate house price indicator items for these households.