Question: How is inflation measured in the UK? Is this measure always accurate?
One measure of inflation is the Consumer Price Index (CPI). The CPI is a price index of a basket of roughly 700 goods and services typically bought by the average household. The basket includes food, drink, shelter, clothing, energy, education and banking services. Goods are weighted more if households spend more money on them. The data is collected annually by the ONS who conduct a price survey, called the Expenditure and Food Survey. Each year the basket is updated to account for the changing patterns of consumer behaviour, some goods may be taken out and/or given less weight, current goods may be given more weight and/or new goods may be added
However, the CPI may not provide an accurate calculation of the UK’s inflation rate. Firstly, the sample may not be representative of the average household. For example, it could include too many rich households, so the basket will not represent the average household’s consumption. Additionally, spending patterns may be dynamic and could change frequently throughout the year, meaning the basket and weights need to be changed more than once per year. Also, black market transactions affect prices but no data exists for them, so they cannot be included in the CPI.