The UK Statistics Authority intends to bring CPIH's methods and data sources into the Retail Prices Index, a change HM Treasury says can legally and practically be made in February 2030 — and the announcement is a statement about how a series is constructed, not a forecast of what it will measure.
Three indices, one of them written into gilts
The Office for National Statistics publishes more than one measure of consumer price inflation, and they do not give the same number. The Retail Prices Index is one of them. The Consumer Prices Index is another, and it is the measure the Bank of England's inflation target is set against. CPIH is the Consumer Prices Index including owner occupiers' housing costs — a broader measure that brings housing costs into the basket. All three are constructed differently, so they can diverge over the same months.
Of the three, it is the Retail Prices Index that matters for an index-linked gilt, because that is the index the gilt's terms point at. The Debt Management Office says the semi-annual coupon and the principal repayment are adjusted in line with RPI, with a lag, to take account of accrued inflation since the gilt was first issued. The index ratio that does the scaling is a division of two RPI values, and both are published by the Office for National Statistics. The gilt's terms reference RPI, not CPI and not CPIH.
What has been announced
HM Treasury's consultation outcome page on the reform of Retail Prices Index methodology records the position, and it is worth setting out in its own terms rather than summarised. As published on that page, and last updated on 26 September 2022:
- As announced in September 2019, the UK Statistics Authority intends to bring the methods and data sources of CPIH into RPI.
- Because RPI is used in two specific index-linked gilts, that proposal would have required the consent of the Chancellor if it were to be implemented before 2030.
- The Chancellor announced that he would be unable to offer that consent to implementation before the maturity of the final specific index-linked gilt in 2030, in order to minimise the impact of reform on the holders of index-linked gilts.
- The change proposed can legally and practically be made by the Authority in February 2030.
- The proposal was the subject of judicial review proceedings; they were dismissed by a judgment given on 1 September 2022, permission to appeal was refused by the High Court, no permission to appeal was sought from the Court of Appeal, and the judgment is final.
Two things are worth noticing in that list. The date is not a decision about statistics alone: it is set by the maturity of two particular gilts whose terms use RPI, and the stated reason for waiting is the effect on the people holding them. And the phrasing throughout is prospective — the Authority intends, the change can be made. Neither of those is the same as a rate having changed, and neither says what the measured rate would be afterwards.
What the announcement does not say
The published material describes a change to how a series is constructed. It does not state the effect of that change on measured inflation, and this article will not supply one. Neither the size nor the direction of any difference after the change is stated on that page, and a figure invented here to fill the gap would be a forecast dressed as a fact.
It also does not change an index-linked gilt's terms. The terms are a contract between the holder and HM Treasury, and what they point at is RPI as it is published. What the announcement changes is the method behind the series the terms refer to, at a date the announcement gives. That distinction is the whole of the substantive point: a holder's entitlement is unchanged, and the number the entitlement multiplies may not be computed the way it was.
A change to how an index is constructed is not a forecast of the index. This article states what HM Treasury has published about the change and predicts nothing about measured inflation before or after it.
Why the yield curve is where the question shows up
An index-linked gilt maturing before 2030 and one maturing well after it are both scaled by RPI, and both sit on the same list. What separates them, for this question, is that one falls entirely inside the period before the announced change and the other extends past it. Nothing on the site labels either gilt as affected or unaffected: the terms do not distinguish them, so neither does the page.
What the site does show is the price. The par RPI curve plots the implied RPI for each priced index-linked gilt against its term to maturity, with a fitted par curve through those points. Because the terms of gilts inside and beyond 2030 are spread along that axis, the shape of the curve across the date is visible to a reader without the site asserting anything about it. Whether the market prices a step, a slope or nothing at all at that boundary is an observation a reader makes from the chart; it is not a number this article can carry without being out of date the week it is published.
Implied RPI is the inflation a gilt's real and nominal yields together imply, derived from two prices at the same term. It is a market price, not a projection by the Office for National Statistics, and a difference between gilts on either side of 2030 could reflect anything that makes two gilts trade differently — term, liquidity, the shape of the real curve — as well as any view about the index.
The arithmetic to the far end rests on an assumption
Up to the last published index figure, an index-linked gilt's cash is arithmetic on facts. The index ratio multiplies a real coupon and a nominal that both come from the gilt's terms, and both RPI values in the division have been published. Beyond that point the position changes: the site applies an assumed inflation rate to grow the remaining flows and marks those rows as an income estimate, so a projected coupon can be told from a scaled one.
For a long-dated gilt, most of the cash sits beyond the last published figure. So the far end of a projection is doubly conditional: it rests on an inflation assumption the reader supplies, and it rests on a series whose construction is announced to change at a stated date. That does not make the projection wrong; it makes it what it is labelled. The honest reading of a projected coupon is that it is what the stated assumption produces, not what the gilt will pay.
What a reader can and cannot conclude
Separating the two columns below is most of the work of reading anything written about this subject, this article included.
- A reader can name the source and the date: HM Treasury's consultation outcome page, last updated on 26 September 2022, is where the announcement and its reasoning are recorded.
- A reader can state the announced fact precisely: the Authority intends to bring CPIH's methods and data sources into RPI, and the change can be made in February 2030.
- A reader can observe the market's own pricing on the par RPI curve, and can see the index ratio each gilt carries at the report date on the index-linked gilts list.
- A reader cannot conclude that measured inflation will be higher or lower after the change. Nothing published states it, and nothing here will guess.
- A reader cannot conclude that an index-linked gilt's cash will rise or fall as a result. The cash follows the published index, whichever method produced it.
- A reader cannot treat a figure derived beyond the last published index as anything other than an estimate built on the assumption entered for it.
There is a wider point in the same shape. An index-linked gilt scales its cash by a published index and answers to a lag, so its cash responds to prices months after they have moved; a change to how the index is constructed is one more reason to read the mechanism rather than a headline figure.
Background, not advice
This article sets out what has been published about the reform of Retail Prices Index methodology and explains how it relates to an index-linked gilt's terms; it is general background, not investment, tax or legal advice for any reader's circumstances. The announcement and its reasoning are on HM Treasury's consultation outcome page, last updated on 26 September 2022; the gilt's terms and the indexation lag are described by the Debt Management Office; and the three price indices are published by the Office for National Statistics. Those are the primary sources, and a reader relying on any of this for an official purpose should check them directly.