17th September 2010
Simon Ward, chief economist at Henderson Global Investors, says the alternative Retail Prices Index (RPI) would give a far better measure of the state of the nation's purse strings.
According to the RPI figure, clothing and footwear prices fell 1.7% in the year to August, but the RPI figure shows they rose by a hefty 6.3%.
Had the RPI figure been used, then Ward, who predicts inflation will be at 4% by the end of the year, says the headline rate would have been 3.5%-3.6% and not 3.1% as the Treasury announced.
Ward says: "A non-technical explanation is that the CPI assumes that consumers are expert at shopping around for best value – so expert that they can obtain the same volume of clothing and footwear as a year ago while reducing their spending by 1.7%, despite a 6.3% rise in label prices.
"This stretches credulity.
"If the same volume could be bought for 1.7% less, it would be reasonable to expect total cash spending on clothing and footwear to be little changed from a year ago.
"Retail sales figures, however, show a 6.4% rise in turnover in textile, clothing and footwear stores in the year to August.
"Based on the 1.7% CPI fall, this suggests an increase of 8.2% in the volume of purchases – implausible when overall consumer spending has been growing weakly."