Transport Price Indices

David Leibling
Royal Automobile Club Foundation for Motoring
June 2009

Over the past 10 years, the cost of motoring has risen by 25% and the cost of public transport fares by 57%, compared with a 41% rise in all prices (all as measured by the retail price index). However, the cost of using a car has risen faster than public transport costs while the cost of buying a car has fallen sharply. The method used to collect car prices for the RPI does not represent the true cost of change. It uses 3 year old car prices as a proxy for both new car prices and for all used cars, but changes in the company car market have distorted 3 year old used car prices so that they are not representative. New car prices have actually remained constant in money terms over the last 10 years. A simple model of the car market shows that the effect of used car prices falling faster than new cars is to increase the cost of change for new car buyers which is what most purchasers experience as they trade-in a used car when they buy a new car. The consumer price index does take account of actual new car prices but still does not account for the cost of change. However lower used car prices have made it easier for people to acquire a car for the first time as shown by the 50% growth in ownership in the lowest income quintile. There are other anomalies in the coding of costs in the RPI and in the treatment of insurance costs in the CPI which mean that they are not truly representative of the changes in motoring costs.

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