RETAIL PRICE INDEX (RELIABILITY) (Hansard, 27 January 1954)

§ Sir W. Monckton

I am glad of this opportunity to allay the doubts which appear to exist in some quarters as to the reliability of the Retail Price Index. I have no hesitation in saying that these doubts are without foundation and that according to the best expert opinion the index reflects, within narrow limits of accuracy, the actual change or absence of change in the price of the goods and services bought by the average family living on a weekly wage or small salary.

All the relevant facts about the index will be found in the report on its working by the Ministry of Labour's Cost of Living Advisory Committee published as a White Paper in March, 1952. This Committee, which was reconstituted by the previous Government and which included representatives of the main industrial interests and a wide range of eminent economists and statisticians, concluded after thorough technical inquiry that the index did not understate or overstate the rise in prices since 1947. The Committee made certain recommendations for technical improvement, the principal one being to bring up to date the pattern of consumption—the shopping basket, so to speak, on which the index is based. These changes were adopted and are embodied in the present index.

The index is, as the White Paper explains in detail, based on a pattern of expenditure carefully worked out to represent post-war spending habits. It covers food, rent and rates, clothing, fuel and light, household goods of all types, services such as travel and entertainment, and drink and tobacco. Some 250 items, including 84 food items, are regularly priced, and the number of separate price quotations used in calculating each month's index is nearly 100,000. The proportion of total expenditure allotted to food in the index is appreciably higher than the known overall national figure. This is an effective safeguard against any risk that the index might underrate the importance of changes in food prices to the budget of the average wage-earner.

While the index thus gives a fair general measure of retail price changes in wage-earners' budgets, it obviously cannot correspond to the experience of every individual family. This is no doubt one reason for the impression in some minds that the index is not realistic. Another reason is the natural tendency to take sharp note of every rise 254W in prices, and to be less sensitive to offsetting falls, such as have occurred during the past 12 months in a variety of articles of food, clothing and furnishing materials and general merchandise. And a third reason is that, apart from any price change, the greater quantity and variety makes people more conscious of the limitations upon what they have to spend.

The Government are continuing to take measures to maintain the accuracy of the index. But as it stands today it is without doubt up to date, reliable and adequate for its purpose which is, in non-technical language, to show any variations in the cost of maintaining the 1950 standard of living of wage and small salary earners. What the index shows is that a month ago retail prices taken together stood substantially at the same level as last March, and only two points above October, 1952—14 months earlier. For food alone, prices in December were the same as last March, and a small fraction of one index point above the level of December, 1952; this is a record of price stability, I feel justified in adding, unprecedented since the war.