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CPI v's HICP

  • 05-04-2012 10:59am
    #1
    OwenM
    Registered Users, Registered Users 2 Posts: 859 ✭✭✭


    Hi All,

    My employer seems to be averaging the CPI and the HICP to come up with a target for salary increases, would anyone care to comment on the validity of the approach. I would have thought the CPI was more like the effective rate on the street?

    Tks,
    Owen.
    Tagged:


Comments

  • #2
    noodler
    Registered Users, Registered Users 2 Posts: 26,735 ✭✭✭✭noodler


    The average CPI rate in 2011 was 2.6%

    The average HICP was only 1.1%.

    The HICP does not include mortgage interest and a couple of other things (hence its lower rate).

    It does seem to me that your employer manages to give less salary increase if he uses an average of both (3.7% /2 = 1.85%??) rather than if he just used the CPI.

    I am afraid I have no industry knowledge of applying it though.

    I will say though, that when mortgage interest and increasing energy costs are removed from the CPI, you get a 'core' measure of inflation which is less than 1% (my point being that if you aren't paying a mortgage, or are not affected by increases in fuel prices then maybe the 2.6% CPI doesn't really paply to you...)


  • #3
    irish_goat
    Moderators, Recreation & Hobbies Moderators Posts: 5,840 Mod ✭✭✭✭irish_goat


    noodler wrote: »
    I will say though, that when mortgage interest and increasing energy costs are removed from the CPI, you get a 'core' measure of inflation which is less than 1% (my point being that if you aren't paying a mortgage, or are not affected by increases in fuel prices then maybe the 2.6% CPI doesn't really paply to you...)

    Can you really say any one is unaffected by increasing fuel charges though?


  • #4
    noodler
    Registered Users, Registered Users 2 Posts: 26,735 ✭✭✭✭noodler


    irish_goat wrote: »
    Can you really say any one is unaffected by increasing fuel charges though?

    Hugely different degrees.

    I mean if you don't have a variable rate mortgage and don't drive (i.e. commute (I would certainly say it is unlikely your cost of living increased by 2.6% in 2011).

    Again, speaking in generalities here.


  • #5
    SBWife
    Registered Users, Registered Users 2 Posts: 1,287 ✭✭✭SBWife


    The other difference between CPI and HICP is HICP attempts to adjust for quality improvements. This means that price increases associated with quality improvements are discounted, eg. If this year's laptop is considered 10% better than last years but costs 15% more only 5% of the increase will be included in the HICP. Given that whole Moore's law thing you can understand how the technology portion of the basket can have a visible dampening effect on the index as a whole.


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