Proposed changes to RPI
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The government appears to be on a pathway to amend the underlying calculation of the Retail Price Index (RPI). They plan to bring the measure into line with the Consumer Price Index including owner occupiers’ housing costs (CPIH), reducing the expected future change in RPI by around 1% per annum.
Markets have moved significantly in anticipation of the proposed changes:
The proposed change would have significant and immediate financial consequences for individuals (e.g. people with RPI-linked pension benefits) and investors in RPI-linked assets, such as index-linked gilts:
- We estimate that the impact on the index-linked gilt market would be a loss of value of c.£90bn.
- It is critical that the January 2020 consultation on proposed changes to RPI allows respondents to express their view on the potential negative effects of the proposals.
- If the opportunity is provided in the consultation, Insight will recommend that RPI be amended to align with CPIH plus a margin. Nobody needs to lose out from this change.
We have created documents designed to raise the profile of this issue which can be downloaded below.
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