The Office for National Statistics has admitted its Retail Sales Index may have overstated sales figures. So how has it re-evaluated its methodology and will this ensure more accurate results?

What is the ONS Retail Sales Index?

Government body the Office for National Statistics compiles and publishes the Retail Sales Index each month based on a survey of about 5,000 different types of retail businesses. The Retail Sales Index is a key economic indicator and is used to estimate consumer spending on retail goods and the output of the retail sector.

Why the recent controversy?

The ONS has long been criticised for the way it calculates its sales figures. Retailers complained the figures gave an overly rosy view of retail sales. The Office for National Statistics always maintained its figures were the most reliable, but this month admitted the way it calculates those figures caused it to “overstate growth in the volume of sales”.

What did ONS do about it?

The ONS carried out a review from July 2007 to February 2008 and decided to change its methodology following feedback received on it.

How are the figures measured?

The figures are measured in value and volume estimates, in both seasonally adjusted and non-seasonally adjusted forms. The value estimates reflect the total turnover that businesses have generated over a standard period, while the volume estimates are calculated by taking the value estimates and adjusting to remove the impact of price changes.

What are the changes?

  • Re-referencing of the index for both value and volume estimates so 2005 is the year for which the index is scaled to equal 100 (it was previously 2000)
  • Use of commodity indices from the Consumer Prices Index rather than from the Retail Prices Index for the calculation of RSI industry deflators
  • Use of a statistical technique called chain-linking for the calculation of volume estimates
  • Availability of seasonally adjusted estimates at a greater level of detail
  • Streamlining the presentation of the published estimates
  • Reducing the focus on non-seasonally adjusted estimates
  • Publication of a separate internet retail sales estimate

What does this mean?

As a result of the changes, year-on-year percentage change in the volume estimates in the most recent periods was lower than the previously published time series by up to 1.5 percentage points. The year-on-year percentage change in the value estimates in the most recent periods  changed so that volumes decreased 0.6 percentage points more than previously thought. The changes were implemented in the May 21 figures.