Experimental UK Regional Consumer Price Inflation with Model-Based Expenditure Weights

Dawber James (), Würz Nora (), Smith Paul A. (), Flower Tanya (), Thomas Heledd (), Schmid Timo () and Tzavidis Nikos ()
Additional contact information
Dawber James: University of Southampton, Highfield, Southampton, SO17 1BJ, UK.
Würz Nora: Freie Universität Berlin, Department of Business and Economics, Garystraße 21, Berlin, 14195, Germany.
Smith Paul A.: University of Southampton, Highfield, Southampton, SO17 1BJ, UK.
Flower Tanya: Office for National Statistics, Government Buildings, Cardiff Road, Newport, NP10 8XG, UK.
Thomas Heledd: Office for National Statistics, Government Buildings, Cardiff Road, Newport, NP10 8XG, UK.
Schmid Timo: Otto-Friedrich-Universität Bamberg, Feldkirchenstraße. 21, Bamberg, 96052, Germany.
Tzavidis Nikos: University of Southampton, Highfield, Southampton, SO17 1BJ, UK.

Journal of Official Statistics, 2022, vol. 38, issue 1, 213-237

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.

Keywords: CPI conceptual framework; basket of goods and services; small area estimation; Fay-Herriot models (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:offsta:v:38:y:2022:i:1:p:213-237:n:5

DOI: 10.2478/jos-2022-0010

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