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The Construction of RPIY

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  • Roger Beaton
  • Paul Fisher

Abstract

This paper outlines the calculations used to construct the Bank of England's measure of retail price inflation, RPIY, which excludes the effects of indirect taxes on final consumption, mortgage interest payments and local authority taxation. This measure of inflation has been constructed in order to gain more insight into the movements in the Government's target measure of retail price inflation, RPIX, which excludes only mortgage interest payments. The technical reason for wanting to strip out the effects of taxation is similar to that for excluding mortgage interest payments from the target measure. An increase in indirect taxes will usually cause a step rise in the RPIX level (although often spread over a period of two or three months). This in turn will lead to a temporary increase in the 12 month inflation rate for at least a year. Hence tax changes introduce a "noise" element in the inflation rate. If one is concerned, with price inflation in the medium term then it is useful to know what the effect of this noise is. Starting with the May 1993 Inflation Report, we have been developing the RPIY so that we can understand how indirect tax changes are impacting on RPIX inflation. The paper represents our "signing off" from the responsibility for both calculating and publishing RPIY, as the CSO will be undertaking this from March 1995.

Suggested Citation

  • Roger Beaton & Paul Fisher, 1995. "The Construction of RPIY," Bank of England working papers 28, Bank of England.
  • Handle: RePEc:boe:boeewp:28
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    File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/1995/wp28.pdf
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    Cited by:

    1. Svensson, Lars E. O., 1997. "Inflation forecast targeting: Implementing and monitoring inflation targets," European Economic Review, Elsevier, vol. 41(6), pages 1111-1146, June.
    2. Marco Bianchi & Gylfi Zoega, 1998. "Unemployment persistence: does the size of the shock matter?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(3), pages 283-304.
    3. Joanna Paisley & Chris Salmon, 1995. "How Cyclical is the PSBR?," Bank of England working papers 34, Bank of England.
    4. Joanne Cutler, 2001. "Core Inflation in the UK," Discussion Papers 03, Monetary Policy Committee Unit, Bank of England.
    5. David Barr & Bahram Pesaran, 1995. "An assessment of the relative importance of real interest rates, inflation and term premia in determining the prices of real and nominal UK bonds," Bank of England working papers 32, Bank of England.
    6. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-1144, September.
    7. Andrew G Haldane, 1995. "Rules, Discretion and the United Kingdom's New Monetary Framework," Bank of England working papers 40, Bank of England.
    8. Mike Joyce, 1995. "Modelling UK Inflation Uncertainty: The Impact of News and the Relationship with Inflation," Bank of England working papers 30, Bank of England.
    9. Nicola Anderson & Francis Breedon, 1996. "UK Asset Price Volatility Over the Last 50 Years," Bank of England working papers 51, Bank of England.
    10. Marco Bianchi, 1996. "A Comparison of Methods for Seasonal Adjustment of the Monetary Aggregates," Bank of England working papers 44, Bank of England.
    11. Charles Nolan & Eric Schaling, 1996. "Monetary Policy Uncertainty and Central Bank Accountability," Bank of England working papers 54, Bank of England.
    12. Marco Bianchi, 1995. "Granger causality tests in the presence of structural changes," Bank of England working papers 33, Bank of England.
    13. Clive Briault & Andrew Haldane & Mervyn King, 1996. "Independence and Accountability," Bank of England working papers 49, Bank of England.
    14. Marco Bianchi, 1995. "Testing for convergence: evidence from non-parametric multimodality tests," Bank of England working papers 36, Bank of England.
    15. Spencer Dale & Marco Rossi, 1996. "A Market for Intra-day Funds: Does it Have Implications for Monetary Policy?," Bank of England working papers 46, Bank of England.
    16. Francis Breedon & Ian Twinn, 1995. "Valuation of underwriting agreements for UK rights issues: evidence from the traded option market," Bank of England working papers 39, Bank of England.
    17. Francis Breedon, 1996. "Why do the LIFFE and DTB bund futures contracts trade at different prices?," Bank of England working papers 57, Bank of England.
    18. Matthew B Canzoneri & Charles Nolan & Anthony Yates, 1996. "Feasible Mechanisms for Achieving Monetary Stability: a Comparison of Inflation Targeting and the ERM," Bank of England working papers 52, Bank of England.
    19. Alan Mankikar & Jo Paisley, 2004. "Core inflation: a critical guide," Bank of England working papers 242, Bank of England.

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