Is the Carli index flawed?: assessing the case for the new retail price index RPIJ

The paper discusses the recent decision of the UK's Office for National Statistics to replace the controversial Carli index with the Jevons index in a new version of the retail price index—RPIJ. In doing so we make three contributions to the way that price indices should be selected for measures of consumer price inflation when quantity information is not available (i.e. at the ‘elementary’ level). Firstly, we introduce a new price bouncing test under the test approach for choosing index numbers. Secondly, we provide empirical evidence on the performance of the Carli and Jevons indices in different contexts under the statistical approach. Thirdly, applying something analogous to the principle of insufficient reason, we argue contrary to received wisdom in the literature, that the economic approach can be used to choose indices at the elementary level, and moreover that it favours the use of the Jevons index. Overall, we conclude that there is a case against the Carli index and that the Jevons index is to be preferred.