§ 4 Mr. GOSLING
[on Wednesday,th July] asked the Minister of Labour whether the Minister is aware that the fall of one point in the cost of living figures between May and June, and a total of 10 points between September and June, have occasioned considerable difficulty in giving effect to certain agreements, owing to the inability of housewives to reconcile the prices quoted by the "Ministry of Labour Gazette" with the actual retail prices; what is the process of obtaining prices and calculating the cost of living figures; and whether, having regard to the changes which have taken place in the standard of living between the ascertainment of the basis of calculations, the Minister does not agree that the time has arrived for setting up an inquiry into the whole matter?
§ Sir M. BARLOW
has now furnished the following particulars:—
STATEMENT EXPLANATORY OF THE METHOD OF CALCULATING THE MINISTRY OF LABOUR INDEX FIGURE OF RETAIL PRICES. [See OFFICIAL REPORT, 5th July, Col. 451, Vol. 165.]
The Ministry of Labour index figure (which relates to retail prices*) is arrived at monthly by a comparison of the prices of ordinary articles bought by working-class families before the War (food, coal, etc.) with the prices of the same articles to-day. This comparison means the careful calculation of two sets of prices:
- (1) The prices of the articles purchased pre-War by the ordinary working-class household;
- (2) The prices of the same articles month by month now.
I The prices of articles purchased pre-War by the ordinary working-class household.
The first step was to arrive at a list of what was consumed in the average working-class household (including house room). A list of articles of food, and the proportions in which they were consumed, had been worked out some years before the War by examining the budgets of some 2,000 working-class families from areas all over the country. This list of articles, originally made in the year 1904, was, early in the War, extended to include other articles than food, and brought up to date for use as a basis for the present index number.
This complete list is grouped under five heads as follows:
- (1) Food (beef, mutton, bacon, fish, flour, potatoes, tea, sugar, milk, butter, margarine, cheese and eggs);
- (2) Rent (including rates);
- (3) Clothing (men's suits and overcoats, woollen and cotton underclothing, and hosiery, woollen and cotton materials, and boots);
- (4) Fuel and light (coal, gas, oil, candles, matches);
- (5) Other items (including soap, soda, domestic ironmongery, brushes, pottery, tobacco and cigarettes, fares, and newspapers).
*The Ministry of Labour figures, which relate only to retail prices, must not be confused with the Board of Trade figures, which relate to wholesale prices.632W
The prices of these articles in 1914 are, of course, on record, and form the basis of the comparison.
II.—The prices of the same articles, month by month, now.
The index figure is worked out monthly in the Department, and the method adopted has been the same since the commencement, many years ago.
At the beginning of each month the prices paid by working people for these items, i.e., food, clothing, fuel and light, house room, etc., are obtained through numerous agencies in some 500 towns and villages all over the country. With regard to food, the prices are collected from well over 5,000 shops, including ordinary retail and multiple shops and co-operative stores; and the information so received is regularly checked by comparing it with prices given in shopkeepers' advertisements, price lists, etc. For other articles, such as clothing, fuel and light, etc., information is obtained mainly from the larger towns. As to working-class rents, data are supplied by associations of property owners and of tenants, and in some cases by local authorities. All the returns, when received, are carefully examined by the Department, and, if any of the figures seem to be inaccurate, immediate inquiries are made before they are adopted.
The Ministry of Labour index figure is then prepared each month by comparison of the prices now (as ascertained in Paragraph II), with the prices in 1914 (as ascertained in Paragraph I).
The comparison is worked out scientifically in accordance with recognised statistical practice. A full explanation of the statistical process employed was given in the Ministry of Labour Gazette for February, 1921. A rough way of illustrating how this comparison of prices works out in practice would be as follows: Let us take a basketful of bread, cheese, meat, etc., such as was bought weekly by an average working-class family before the War. We know the price of each article in that basket at July, 1914; and each month now we obtain the prices of exactly the same articles. For example, we know that on the average of the whole country a 4-lb. loaf cost about 5¾d. in 1914, and costs nearly 9d. to-day; and the increase on 633W the loaf is 53 per cent. In the same way we take percentage increase on the other articles in our basket.
But this comparison, article by article, is not enough; a further step is necessary. It is obvious that the amount of each article which an average working-class family ordinarily consumed before the War varied considerably, as between different articles; take, for instance, bread and cheese: in a household where seven or eight four-pound loaves are consumed weekly, it might be that only 1 lb. of cheese would be used, and this difference in amount must be borne in mind in making the calculation. For example, if the price of the four-pound loaf had risen between 1914 and to-day by 50 per cent., and the price of 1 lb. of cheese had risen by 60 per cent., the average increase would not be 55 per cent., i.e., the mean between the two, but a lower figure than 55 per cent., because there is so much less cheese in our basket than bread. In other words, in reaching our average index figure, we have to consider not only the percentage increase of each article, but the relative importance of each article in the family budget. The resulting general average may, therefore, be higher or lower than that reached in respect of any one article.
Another point must be borne in mind. We do not say what amounts of bread, cheese, meat, etc., a working-class family ought to have had in 1914. Moreover, generally speaking, the size of the basket does not affect our calculations, for whether we are dealing with a larger or a smaller basket, the percentage increase is generally the same.
It is true that over a considerable period the proportion of any one article to the others in the basket may vary, and if such variation were considerable it might have some effect on the final figure. It is conceivable that as 10 years have now elapsed since the calculations commenced (and in the case of food considerably longer) some change may have taken place in the nature of, or the proportion of, the articles. The changes are almost certainly small, and even if proved to exist will probably not be all in the same direction—in which case they would tend to cancel one another out. At the same time it is desirable from time to time to examine the list of articles so as to keep the list 634W and the proportions up to date. For this reason it has been for some time under consideration whether it would not be necessary before long to institute one of these periodic examinations, and accordingly the Minister of Labour announced in the House on 24th April last his intention of instituting an inquiry into the present-day distribution of working-class expenditure as soon as conditions become more normal. In this connection two things must be made clear. In the first place such an inquiry would be concerned with the contents and proportions of the articles in what has been called the basket, or, to use more technical language, with the ascertainment of an average present-day working-class Budget.
The scientific method of calculating the Ministry of Labour index figure itself would not be an issue in such an inquiry: that method, though often attacked, and often from opposite points of view, has successfully withstood criticism. In the the second place, there is ground for supposing, from such information as is obtainable without special inquiry, that the effect of the variations since 1914 on the final figure would be negligible.