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Experimental UK regional consumer price inflation with model‐based expenditure weights

Experimental UK regional consumer price inflation with model‐based expenditure weights
Experimental UK regional consumer price inflation with model‐based expenditure weights

Like many other countries, the United Kingdom (UK) produces a national consumer price index (CPI) to measure inflation. Presently, CPI measures are not produced for regions within the UK. It is believed that, using only available data sources, a regional CPI would not be precise or reliable enough as an official statistic, primarily because the regional partitioning of the data makes sample sizes too small. We investigate this claim by producing experimental regional CPIs using publicly available price data, and deriving expenditure weights from the Living Costs and Food survey. We detail the methods and challenges of developing a regional CPI and evaluate its reliability. We then assess whether model-based methods such as smoothing and small area estimation significantly improve the measures. We find that a regional CPI can be produced with available data sources, however it appears to be excessively volatile over time, mainly due to the weights. Smoothing and small area estimation improve the reliability of the regional CPI series to some extent but they remain too volatile for regional policy use. This research provides a valuable framework for the development of a more viable regional CPI measure for the UK in the future.

CPI conceptual framework, Fay-Herriot models, basket of goods and services, small area estimation
0282-423X
213-237
Dawber, James
85c7c036-2ae3-4c57-a8b3-9f5223cd4da6
Würz, Nora
237b08df-4f82-4917-b3af-56d8c7ab969c
Smith, Paul A.
a2548525-4f99-4baf-a4d0-2b216cce059c
Flower, Tanya
5bb84cfe-cab9-4beb-bb64-89de5b2a7b84
Thomas, Heledd
f43b2842-8519-40b6-a71d-4fcdd19a39b9
Schmid, Timo
6337d53e-bfc0-4a18-b31c-551d2f859336
Tzavidis, Nikolaos
431ec55d-c147-466d-9c65-0f377b0c1f6a
Dawber, James
85c7c036-2ae3-4c57-a8b3-9f5223cd4da6
Würz, Nora
237b08df-4f82-4917-b3af-56d8c7ab969c
Smith, Paul A.
a2548525-4f99-4baf-a4d0-2b216cce059c
Flower, Tanya
5bb84cfe-cab9-4beb-bb64-89de5b2a7b84
Thomas, Heledd
f43b2842-8519-40b6-a71d-4fcdd19a39b9
Schmid, Timo
6337d53e-bfc0-4a18-b31c-551d2f859336
Tzavidis, Nikolaos
431ec55d-c147-466d-9c65-0f377b0c1f6a

Dawber, James, Würz, Nora, Smith, Paul A., Flower, Tanya, Thomas, Heledd, Schmid, Timo and Tzavidis, Nikolaos (2022) Experimental UK regional consumer price inflation with model‐based expenditure weights. Journal of Official Statistics, 38 (1), 213-237. (doi:10.2478/jos-2022-0010).

Record type: Article

Abstract

Like many other countries, the United Kingdom (UK) produces a national consumer price index (CPI) to measure inflation. Presently, CPI measures are not produced for regions within the UK. It is believed that, using only available data sources, a regional CPI would not be precise or reliable enough as an official statistic, primarily because the regional partitioning of the data makes sample sizes too small. We investigate this claim by producing experimental regional CPIs using publicly available price data, and deriving expenditure weights from the Living Costs and Food survey. We detail the methods and challenges of developing a regional CPI and evaluate its reliability. We then assess whether model-based methods such as smoothing and small area estimation significantly improve the measures. We find that a regional CPI can be produced with available data sources, however it appears to be excessively volatile over time, mainly due to the weights. Smoothing and small area estimation improve the reliability of the regional CPI series to some extent but they remain too volatile for regional policy use. This research provides a valuable framework for the development of a more viable regional CPI measure for the UK in the future.

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Experimental UK regional consumer price inflation with model-based expenditure weights AAM - Accepted Manuscript
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Accepted/In Press date: 20 May 2021
Published date: 29 March 2022
Additional Information: Publisher Copyright: © 2022 James Dawber et al., published by Sciendo.
Keywords: CPI conceptual framework, Fay-Herriot models, basket of goods and services, small area estimation

Identifiers

Local EPrints ID: 449694
URI: http://eprints.soton.ac.uk/id/eprint/449694
ISSN: 0282-423X
PURE UUID: 7d40aa00-c58f-4c4d-82c8-a4089c6c8085
ORCID for Paul A. Smith: ORCID iD orcid.org/0000-0001-5337-2746
ORCID for Nikolaos Tzavidis: ORCID iD orcid.org/0000-0002-8413-8095

Catalogue record

Date deposited: 11 Jun 2021 16:30
Last modified: 22 Nov 2022 02:43

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Contributors

Author: James Dawber
Author: Nora Würz
Author: Paul A. Smith ORCID iD
Author: Tanya Flower
Author: Heledd Thomas
Author: Timo Schmid

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