Business Analysis: Jamie Oliver will hate it, but chicken nuggets join inflation list

Laptops in, dumb bells out in annual reassessment of inflation index constituents
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The Independent Online

Jamie Oliver will not find it "pukka" but chicken nuggets and giant fizzy drink bottles are now so popular they have earned their place in the UK's official "shopping basket".

Jamie Oliver will not find it "pukka" but chicken nuggets and giant fizzy drink bottles are now so popular they have earned their place in the UK's official "shopping basket".

The modern school kid's staple diet has edged out traditional fare such as baguettes and corned beef in the list of goods and services used to calculate inflation.

The changes are one element in an annual review of the basket that over the years has garnered a reputation as a bellwether ­ albeit a sometimes misguided one ­ of consumers' eating, dressing and recreational activities.

Other highlights are the inclusion for the first time of items that are rapidly falling in price such as laptop computers and mobile phone handsets, triggering conspiracy theories about an attempt to drive down the recorded inflation rate.

Prices of 650 representative items are collected each month to try to cover the full range of consumer spending to give an estimate of inflation overall.

Once a year the Office for National Statistics makes an effort to keep pace with changing spending patterns by identifying the "must have" items and replacing the "must chuck".

But because of this "lag" effect the annual review has won an unfortunate reputation for including an item just as it has gone out of fashion ­ and vice versa.

So this year's inclusion of frozen chicken nuggets, pre-packed vegetables and half-litre bottles of fizzy drinks comes amid a political furore over the quality of school meals.

Oliver, the celebrity chef, has criticised the prevalence of junk food such as the Turkey Twizzler, a highly processed poultry nugget that contained just 34 per cent turkey meat with the rest made up of rusk, pork fat, water, additives, preservatives and flavourings.

Margaret Hodge, the children's minister, was taken task on BBC Radio Four's Today programme yesterday over the number of drinks-vending machines in schools.

The ONS said it was keen to avoid getting involved in the political debate, insisting it was simply trying to get the best representative basket of the average monthly shop.

David Roe, its inflation statistician in charge of the review, said: "I do not set myself up as a lifestyle guru. This is not about what people should be buying. If people are buying them they should be in and you only have to walk down a supermarket aisle to see how much shelf space they take. But I would not make out that spending on processed chicken has been going through the roof recently."

He said the focus on 500ml fizzy drinks bottles was a mark of the shift away from the traditional 330ml can as the classic "impulse purchase".

More significantly, it replaces the diet aid drink in the index, a swap that will add to fears that Britain is following the US down the road towards a more obese and less healthy nation.

But was the inclusion of these two new food and drink categories a response to the growing debate on child obesity? "No, it's an absolute coincidence," Mr Roe says. "The review process has been under way since last summer."

The same defence applies to the inclusion of charges for ATM ­ "hole in the wall" ­ cash machines. A few weeks ago a committee of MPs lambasted the banks for introducing charges "by stealth".

Mr Roe said it was an attempt to include a growing part of the £12bn-a-year financial services industry. Its inclusion was part of a drive to improve its coverage of services as opposed to goods.

As a result, items such as admissions to music concerts, a hotel room for one night and fees charged by solicitors and carpenters have been included.

On the goods side, the ONS believes consumers are now more likely to buy leather sofas than upholstered ones, and wooden patio sets had the edge over plastic versions.

Writing paper appears to have suffered from the growing use of e-mail for correspondence, and it has been ejected from the basket, along with disposable razors and food processors.

Although the lists provide ample material for humour, that conceals the serious purpose of the exercise, which is to make the inflation figure as accurate as possible.

Since the global shift towards inflation targeting, the monthly estimate of growth in the consumer price index has become the key piece of information for central banks such as the Bank of England.

Mr Roe says that in a perfect world the ONS would estimate each of the billions of transactions carried out every year. "But we can't do that. It's partly a question of resources and the other problem is that you would get the data a year in arrears," he said.

He said the annual exercise was an attempt to choose the 650 items that most closely represented the British way of spending. Some items were mandatory because of their importance, such as petrol, car purchase, rents and electricity and gas. "We are looking for a nice, representative set of items but I am sure you could conceive of another, equally representative set," he said.

From an economics perspective, one of the most significant decisions was to include prices of laptop computers and mobile phone handsets. Goods such as these have presented a particular problem to statisticians because their technical capability has increased exponentially even as their prices have fallen.

The ONS is now confident it has found a way to adjust the changes in their prices for any shift in product quality. For instance, for laptops, the technique ­ known as hedonic pricing from the ancient Greek word for enjoyment ­ attempts to take account of attributes such as processor speed, hard-disk size, screen size, weight, battery life, operating system and warranty.

But Mr Roe insisted the inclusion of these rapidly deflating items was not part of a conspiracy to lower the inflation index to help the Bank cut rates.

He said that using the price of handsets was a better way of measuring the prices of mobile phones than the previous method of measuring the cost of using the device.

"We are getting a better measure of this category but it does not mean that its weight in the overall index will become skewed," he said. "It's not as if we had been using bananas to represent mobile phones."