ONS : Result of Consultation on RPI Calculation

10 January 2012 The Office for National Statistics has announced the result of their review into the RPI calculation methodology. This product is used as a key reference index for UK index-linked securities and derivatives as well as being the reference for some benefit increases in defined benefit pensions entitlement. The ONS have recommended that the calculation of the RPI remain unchanged : thus protecting the status of RPI-linked pensions and financial assets : whilst acknowledging the shortcomings in the methodology by adding the new RPIJ index based on geometric averaging (which is consistent with both the CPI and generally…

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ONS : Consultation on CPI (inclusion of housing costs)

12 July 2012 The Office for National Statistics is consulting on the method for including owner occupier housing costs (OOHC) in a new and additional measure of consumer price inflation. This is important because the current statutory CPI does not capture this (whereas RPI does) and OOHC account for approximately 10% of household expenditure (UK National Accounts). There are a number of possible methods to capture OOHC; ONS propose to accomplish this by converting relevant expenditure into an equivalent rental cost for incorporation into the calculation. Inclusion of OOHC is not currently consistent with the general European Statistics framework and…

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UK DMO : No CPI Gilts to be issued in 2012-13

6 December 2011 The UK Debt Management Office has concluded its consultation on the possible issuance of CPI gilts (as we reported here). As a result of this consultation, the DMO has announced that no CPI-linked gilts will be issued in 2012-13, though this does not preclude the issuance of such gilts in the medium term, should circumstances change. The DMO gives four broad reasons for its decision: The concern that the introduction of CPI-linked gilts could detract from the liquidity of the existing RPI-linked market The uncertainty about potential future changes in CPI calculation methodology and the possibility of…

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Inflation and Defined Benefit Pension schemes

31 October 2011 October saw the release of notably high inflation figures – a two year peak for CPI and a twenty year peak for RPI – coinciding with the setting of pension increases for UK defined benefit pension schemes with September year-end. We provided a brief update at the time of release here but here present a more detailed paper on the direct and indirect impacts of inflation on these schemes. Inflation provides a good example of a crucial factor that affects both sides of the DB scheme balance sheet and our response as pension professionals should therefore bear…

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ONS : UK Inflation Update September 2011

18 October 2011 UK inflation numbers just out from the Office of National Statistics: 12 months to end September 2011: Consumer Price Inflation came in at 5.2% (an increase from 4.5% last month) Retail Price Inflation came in at 5.6% (an increase from 5.2% last month) The figures are high and will form the basis of calculation for DB scheme benefit increases as at end September : compared to 4.2%/5.0% (CPI/RPI) for June and 4.1%/5.3% for March. Schemes calculating benefit increases at the end of December have so far seen prices increase by 3.5%/4.2% for the 2011 year to date,…

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UK DMO : CPI linked Gilts Consultation

29 June 2011 The United Kingdom Debt Management Office has launched a consultation aimed at exploring the viability of launching a CPI linked gilts issuance program. Prior to committing to this, the DMO wish to establish the level of investor appetite and commitment to this product, both in absolute terms and relative to the well established RPI-linked gilt program. The consultation closes on 22 September 2011. The consultation paper is obviously relevant in the context of recent discussions on CPI vs RPI indexation. It is very accessible but investors may also prefer to consult with advisers or with their bond…

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