HC Deb 16 May 1991 vol 191 cc412-3
3. Mr. Beith

To ask the Chancellor of the Exchequer which index of inflation he treats as the most reliable; and whether he has any plans for a new index.

The Chancellor of the Exchequer (Mr. Norman Lamont)

I pay close attention to a range of indicators of inflation. I am currently considering the recommendation of the Select Committee on Treasury and Civil Service for a new index of consumer prices comparable with that of our European Community partners.

Mr. Beith

When the retail prices index is published tomorrow, will the Chancellor draw attention to the advice of the present Prime Minister, given a year ago, that the RPI is an inaccurate measure of underlying inflation? Is it true that the Bank of England has developed a new index of contemporary inflation which suggest that underlying inflation is remaining stubbornly high and may be influencing the Governor's current advice to the Government?

Mr. Lamont

On the first point, the RPI could hardly measure underlying inflation as it is a measure of headline inflation. It is the measure which matters to wage bargainers and to consumers, so it is good news for the country that it is coming down. It matters to pensioners, it matters to savers and it matters to British industry. All that the hon. Gentleman does is sit and nit-pick. We have said consistently that when looking at inflationary pressures we look at the underlying rate. The underlying rate, excluding mortgage interest payments, has come down by 1 per cent. in the past six months. We are winning the battle against inflation and we shall go on winning it.

Mr. Charles Wardle

Surely the headline rate is what matters most to people with mortgages and community charge bills to pay. Is not the underlying rate likely to take a little longer to drop because of high wage settlements last autumn? Is not it likely to come down anyway later in the year if current policies are maintained?

Mr. Lamont

My hon. Friend is right. Obviously, the underlying rate comes down less quickly than the headline rate. The underlying rate did not go up nearly as much as the headline rate did, so there is no great issue to be made out of that. My hon. Friend is also right about earnings in manufacturing industry. It is extremely good news that, in the past two months, the rate of increase in earnings in manufacturing industry has gone down by 1 per cent. That shows that people are adjusting to inflation coming down.