UK to adopt new measure of inflation in 2017

The preferred official measure of UK inflation is set to change from next March to include housing costs and council tax.

The Office for National Statistics (ONS) said it will switch from the Consumer Prices Index (CPI) currently used as the central measure of inflation to CPIH.

It said while CPIH will not measure house prices or mortgage payments, CPIH will estimate how much a homeowner would pay to rent their own home and will also include council tax.

The change raises questions over whether the Government will also switch to the new measure when calculating inflation-linked state benefits, while many occupational pensions also rise in line with CPI.

CPI is also the main UK measure of inflation for macroeconomic policy - used by the Government to set the Bank of England's remit to keep inflation at 2%.

The Bank declined to comment on the change, but has said previously there was a "strong case" for CPIH to become the main measure.

It said in a consultation on CPIH in early 2015 that "identifying a single main measure helps to provide clarity about the overall level of consumer price change across the economy ... In time, this measure should be CPIH".

It added: "Housing costs represent an important element of household expenditure and ideally should be captured in the main measure of consumer prices."

The ONS said it will continue to publish CPI alongside its new preferred measure.

In September, CPI stood at 1%, while CPIH was 1.2%.

The ONS has already been publishing CPIH each month since 2013 as one of the many measures given to gauge changes to the cost of living in the UK.

But the body which supervises the ONS said in 2014 that it fell below acceptable quality standards.

John Pullinger, national statistician and ONS chief executive, said: "We intend to make CPIH the preferred measure from March 2017, by which time all the planned improvements will have been implemented."