DEBATE: Are smart speakers really a better measure of inflation for the ONS than envelopes?

Are smart speakers really a better measure of inflation for the ONS than envelopes?

Vicky Pryce, former joint head of the Government Economic Service and author of It’s the Economy, Stupid, says YES.

It makes sense for the ONS to rethink its inflation basket. Fewer people write letters now, although parcels have increased with online purchases.

Similarly, people rarely buy three-piece suites of furniture. Eating habits have changed. Technology is improving rapidly and changing shopping patterns. Updating the composition of the price index makes sense.

So no to hi-fi systems or envelopes any longer as barometers of the cost of living, no to three-piece suites, but yes to single items of furniture, smart speakers such as the Amazon Echo device, shop-bought popcorn, children’s fiction, as well as baking equipment reflecting the success of TV baking shows.

One of course needs to keep a balanced view, as there are categories of people that will still stick to old-fashioned ways of communication and distrust technology. I must admit that I don’t have an Alexa, still send lots of letters, don’t bake, and rarely shop online. But even I accept that we must move with the times.

Pierre Ortlieb, an economist at OMFIF, says NO.

No single good is a clear-cut inferior or superior measure of price fluctuations. The scale of the ONS inflation basket is indicative of this: 688 of the just over 700 goods in the basket remained unchanged with this announcement. Switching a single item has little impact.

However, in its fervour to capture “modern” consumption habits, the ONS may have dropped too rashly some consumer staples for emerging products. Granted, the research firm E-marketer estimates that 13m UK households will use smart speakers in 2019. But sales of envelopes remain substantial, despite the use of emails over letters. For example, the UK is the world’s largest per capita consumer of greeting cards, most of which are delivered in envelopes.

Rather than focusing on a single product, public debate would benefit from a discussion of the structural flaws in the current RPI inflation measure. Critics claim that this feature of the ONS approach has overwhelmingly favoured inflation-linked gilt holders, and merits far greater scrutiny.