Bricks, clicks and price indexes

Citation

Foley, P. (2001), "Bricks, clicks and price indexes", European Business Review, Vol. 13 No. 5. https://doi.org/10.1108/ebr.2001.05413eag.001

Bricks, clicks and price indexes

Bricks, clicks and price indexesKeywords: Pricing, Consumer goods, Indexes

The retail price index in the UK was first created in 1947. It measures change in the general level of prices charged for goods and services bought for the purpose of consumption by the vast majority of households in the UK. It is a barometer of the economy of the UK and shows the impact of inflation on family budgets.

In July 2000 Goldfish, the financial services and consumer information provider, launched the first UK index of online consumer prices. Datamonitor, a market analysis firm, is responsible for undertaking the research that underpins the Goldfish e-Tail price index (ePI). This editorial briefly reviews Web sites and methodologies associated with the terrestrial retail price index and its online counterpart.

The retail price index, or RPI as it is more commonly known, is calculated on a monthly basis by the Office for National Statistics. The ONS suggests that the best way of thinking about the RPI is to imagine a very large "shopping basket" full of goods and services on which people typically spend their money; from bread to ready-made meals and from holidays to bicycles. The content of the basket is fixed. A large sample of shops and other outlets throughout the UK are visited every month to record the prices of goods that comprise the basket. Considerable care is taken to ensure the basket is kept up-to-date and is representative of people's spending patterns. This includes the places and shops ONS representatives visit, the goods and services surveyed and the amounts that households spend on them.

There are over 600 separate indicators used in compiling the RPI. The movements of these are taken to represent the price changes for goods and services covered by the index. For example, there are six price indicators for bread that are combined together to estimate the overall change in bread prices. The largest constituent elements of the RPI are housing (which comprises 19.5 per cent of the index) and motoring expenditure (14.6 per cent). Figure 1 shows the broad constituent elements that comprise the RPI.

The ONS Web site provides latest data about the RPI and other indexes (including RPI excluding mortgage interest and average earnings index) on a single Web page that also provides data about monthly, quarterly and annual change.

Figure 1 Elements that comprise the RPI

Income Data Services, an independent research organisation working primarily in the employment field, have a site that also presents RPI information. However, they present monthly index values and annual rates of inflation for the last two years on a single Web page.

A useful Web site, if more historic information is required about the RPI, can be found on Wolbane Cybernetic's Web site. It provides monthly RPI index values compiled from various sources from January 1915 up to the present day.

The Goldfish e-Tail price index method is modelled on the system used by the ONS for the generation of the RPI. To take into account the differences in the markets for consumer goods online and in the high street, modifications have been made to the original model, refining it further for use on the Internet.

There are a total of 1,300 goods included in the ePI survey. The range of product sectors used in the Goldfish index has been selected to reflect the broad spread of consumer spending. The only products featured in the RPI which are absent from the ePI are those which are not currently available online and which often require a high-street presence (such as the cost of a restaurant meal or drinks bought in pubs). The Goldfish index is intending to include these items as the online marketplace develops to provide them or their equivalents in the future.

The ePI is not designed to mirror the RPI but, as the RPI reflects consumer activity in the high street, the ePI reflects consumer activity online. Though both the ePI and RPI track consumer prices, they are not perfect like-for-like comparisons, though broad comparisons can be made. The principal differences are:

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  Comparative time frames: though the RPI is calculated monthly, the trends and conclusions it draws are made on an annual basis and the Office for National Statistics guards against drawing conclusions from the monthly data. The ePI is also calculated monthly but, due to the speed of market developments over the Internet, monthly conclusions are made. Overtime annual trends will emerge.

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  Regional comparisons: the RPI covers more retailers because it seeks to reflect regional changes. The ePI asserts that this is not relevant to the Internet.

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  Products not available over the Internet: clearly the ePI cannot take account of the full range of products that are available in the high street as not all are available over the Internet. For instance, mortgages are not currently included in the ePI because, though they can be applied for online, the transaction is ultimately carried out off-line. When this changes, they will be introduced to the ePI.

Finally, if you are not interested in finding out indexes for baskets of goods in the high street or online, but instead you want to find the cheapest price for specific goods, such as cameras, computers, books or CDs, there are a number of comparison sites available. Dealtime and Checkaprice can help to find the cheapest online price for many goods.

Web sites

Listed below is a selective review of Web sites that provide further details about price indexes and comparison shopping sites. Dynamic links to these pages can be found at the International Electronic Commerce Research Centre Web site http://www.iecrc.org/ebrindexes.htm

The ONS home pagehttp://www.statistics.gov.uk/default.asp

ONS RPI latest figureshttp://www.statistics.gov.uk/instantfigures.asp

ONS short paper on how the RPI is calculated and usedhttp://www.statistics.gov.uk/themes/economy/Articles/BriefGuides/downloads/rpiguides.pdf

IDS RPI two years of monthly RPI figureshttp://www.incomesdata.co.uk/statistics/rpitable.htm

Wolbane Cybernetic's RPI index from January 1915http://www.wolfbane.com/rpi.htm

Goldfish Press Release concerning the launch of the ePIhttp://www.goldfishepi.com/gfpress/release1.html

Latest Goldfish ePI commentary and resultshttp://www.goldfishepi.com/index.html

Checkaprice online price comparison Web sitehttp://www.checkaprice.co.uk/

Dealtime online price comparison Web sitehttp://www.dealtime.co.uk/

Paul FoleyDirector of the International Electronic Commerce Research Centre, De Montfort University, Leicester, and Visiting Professor, School of Accounting and Information Systems, University of South Australia. E-mail: pdf@dmu.ac.uk