Website will allow you to calculate your own personal rate of inflation

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The Independent Online

The Government has acknowledged that official inflation figures failed to match households' own experience of rising prices.

The Office for National Statistics (ONS), a Treasury agency, will later this month unveil an online "personal calculator" that will allow people to see if their own inflation is higher or lower than the national average. It is the first admission that the rate of inflation the Bank of England targets when it sets interest rates does not match people's experience.

Karen Dunnell, the National Statistician, said: "People often ask why the national inflation figures, which we publish every month, do not seem to correspond with own experience."

She said the figures were based on average spending patterns. "But every household is different and the way inflation affects them depends on how they spend their money," she said.

The issue has become prominent since the Treasury switched the inflation measure that the Bank targets to the CPI from the Retail Price Index excluding mortgage payments (RPIX). They key difference between the two is that the CPI excludes any element of house price inflation, which can affect people's inflation rates differently in different parts of the country.

But there is a wider concern that the figures fail to reflect the impact on the least vulnerable. While falling prices of MP3 players and computers push the index down, they mask sharp rises in utility bills. Gas bills have risen by more than 17 per cent over the past year while electricity tariffs are up by 11 per cent. Both are bills that have to be paid and hit the poor hardest. In contrast luxury items such as computers and digital music players have fallen by as much as 27 per cent over the last year. These two groups have as much weight as each as other in the inflation index.

One particularly vulnerable group is pensioners who suffer a double blow of having to meet the cost of spiralling bills while their pension and benefits are pegged to the headline rate of inflation. An index constructed by The Independent earlier this year showed inflation of essential goods and services had outstripped headline inflation for several years. At one point it was running at 5.5 per cent when the CPI was just 1.5 per cent.

Jonathan Loynes, its chief UK economist, said: "The ONS move is recognition of the concern many people feel that the official inflation figures don't reflect their own experience."

Campaign groups welcomed the move but said it was a "small step" towards much-needed reform of the way that inflation is calculated. A spokesman for Help the Aged said: "The current method of calculating inflation is hopelessly inadequate in the reflecting rising inflation pensioners have bear.

"Inflation-busting increases in fuel and council tax mean RPI and CPI are completely irrelevant and we would welcome the ONS making any moves to try to create a measure that is appropriate."

He said it was "ironic" the calculator would only be available online when it was pensioners and the elderly who had the least access to the internet.

Gordon Lishman, director general of Age Concern, said older people's pensions were not keeping up with their real costs of living.

"The Government needs to increase the Basic State Pension and restore its link to earnings immediately," he said. "Until then, paying rising bills will remain a struggle for too many older people."

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