CPI Quiz

1. Authorised and Regulated by the Financial Conduct Authority
CPI Quiz presentation
Railene Waters, Head of Business Development

2. 2
The power of inflation
If my weekly living expenses were £67 in 1997.
How much are they today with inflation at 2%pa?

3. 3
1 2
3 4
£82 £98
£104 £112
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to reveal
answer

4. 5
Why we chase inflation plus
Our goal is to preserve and grow wealth.
Therefore our objective is to beat inflation to maintain and
increase clients’ purchasing power in the real world – after
our costs.
The Chart on the right shows the effect of inflation over
various time periods. Even a low inflation of 2% will reduce
the purchasing power of £1000 to £600 in 25 years time.

5. 6
Differences in CPI and RPI
•RPI developed after WW2 and less representative for high earners,
pensioners & those living on state benefits
•CPI introduced in 1997 & used for BOE inflation target from 2003
•CPI is a modern calculation and accounts for SUBSTITUTION
•The ‘formula’ effect is the biggest difference between the series
•RPI uses mortgage interest payments for home ownership costs, CPI uses
‘imputed rent’
We believe CPI is more relevant

6. 7
2
3
Which item is not in CPI basket?
1
4
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answer

7. 9
Selecting Representative items
•A number of factors need to be taken into account when choosing representative items. Of course, the items must be easy to find
by the team of people collecting the price quotes, so ensuring that estimates of price change are based on an adequate number of
quotes collected throughout the UK.
•Since the consumer price inflation statistics are based on the cost of fixed in-year baskets of goods and services, ideally they
should also be available for purchase throughout the year. However, availability of some clothing and garden items is clearly
seasonal and so these goods require a slightly different treatment in the indices. For example, prices of patio furniture are only
collected during the summer months when the item is mostly found in shops. In winter months, their index is constructed based
on the prices of other items in the furniture section of the basket
•The number of items chosen to represent each product group within the indices depends both on the weight (that is,
expenditure) of the group and also the variability of price changes between the various items that could be selected to represent
the group (reflecting, for example, the diversity of products available). Intuitively, it makes sense to choose more items in product
groups where spending is high. This helps to minimise sampling variability in the estimate of price change for high-weighted groups
and therefore in the overall price index. However, if price movements of all possible items in the group are very similar, it is
sufficient to collect prices for only a few1. In contrast, if price movements of all the possible items are very different, prices will be
needed for many representative items to get a reliable overall estimate of price change for the group.

8. 10
Allocation of items to the Consumer Prices Index
Table 1: Allocation of items to Consumer Prices Index including owner occupiers' housing costs (CPIH) divisions in 2019
CPIH weight, Jan 2019 (per cent)
Observed variation in price
changes¹
Representative items² (per cent
of total)
1 Food and non-alcoholic
beverages
8.0 Medium 24
2 Alcohol and tobacco 3.2 Medium 4
3 Clothing and footwear 5.7 Medium 11
4 Housing and household services 29.8 Low 5
5 Furniture and household goods 5.2 Medium 10
6 Health 2.2 Low 3
7 Transport 12.4 Medium 6
8 Communication 2.0 Medium 1
9 Recreation and culture 12.5 Medium 17
10 Education 1.8 Low 1
11 Restaurants and hotels 9.8 Low 7
12 Miscellaneous goods and
services
7.4 Medium 11
Source: Office for National Statistics

9. 11
The CPI basket
Reviewed annually
~ 700 ‘representative items’
Updated monthly
~ 180,000 price quotes
Sourced from
~ 140 locations plus…
On-line prices plus……
Email/phone calls
Index maintained to isolate the price changes
IN OUT
Yoghurt Hake
Duvets Prunes
Cassette recorder Bicycle tyres
Dried mash potato Shirts with loose collars
1970 Basket Review

10. 12
1 2
3 4
What was added to CPI in 2016?
Click in here
to reveal
answer

11. 14
Changes in ‘CPI’ basket 2019
IN OUT
Popcorn 3 piece non leather sofa
Dog treats Envelopes
Electric Toothbrush Hi-Fi
Adult hat/Cap Unit trust initial charge
2019 Basket Review
Source: Office for National Statistics

12. 15
Wealth management
I need to
outperform
my
benchmark or
at least my
peers
Typical Client Typical DFM
I need to
increase my
wealth or
make it last
through
retirement

13. 16
About Us
As at September 2016
City Asset Management
Est. 1988
Our focus, over the investment cycle, is to grow real wealth by generating returns
well ahead of inflation after our costs.
33
Support
Staff
A Specialist Wealth Manager
mainly owned by family and
staff
17
Investment
Professionals
Award Winning Investment
Proposition & Service Levels

14. 17
City Asset Management is authorised and regulated by the Financial Conduct Authority. Registered Office: 7
Bishopsgate, London, EC2N 3AR, Registered No. 2215617.
Investments may not exactly replicate the relevant Portfolio due to the difference in timing of initial investment
or rebalancing differences resulting from minimum transaction size limits.
The value of investments and the income from them can go down as well as up and an investor may not get
back the amount originally invested and may be affected by fluctuations in exchange rates. Past performance
should not be seen as an indication of future performance. The Financial Conduct Authority does not regulate
tax advice, trusts or offshore investments.
The information contained within this presentation is considered valid at publication however it can be subject
to change without notice. City Asset Management cannot be held responsible for any errors or omissions
contained within this presentation.
No part of this presentation may be reproduced or circulated at any time without the prior permission of City
Asset Management’s Chief Executive Officer.
© 2019 City Asset Management Plc all rights reserved
Compliance ref : HM5690
Information & risk warnings

15. 18
Investment risks*
Market risk*: Capital returns depend on the performance of the underlying markets and, if actively managed,
the managers skill . Neither variables are guaranteed and returns could be lower or higher than the
index/market return
Tax risk*: The tax treatment of the investment might change during the period of ownership
Exit risk*: The secondary market price of investments will depend on many factors and when sold the price
could be less than amount invested.
Time horizon (structured/capital protected investments): Whilst an investor might be happy with the capital
erosion prospects of a structured investment at maturity, the reference index/indices could fall throughout the
life of the security. Therefore the value could drop by more than expected before maturity.
Liquidity risk (open ended & structured investments): These investments will not be traded on an organised
exchange. The issuer will use all reasonable efforts to quote prices but liquidity cannot be guaranteed. Open
ended funds in longer term assets such as commercial property have closed temporarily during periods of
market stress. Structured investments became difficult to trade during the banking crisis in 2008.
Liquidity risk (investment trusts/listed shares & bonds): These securities trade on an organised market but to
be able sell, a buyer has to be found. Whilst highly likely, it cannot be guaranteed in all market conditions.
Credit risk (fixed income/structured investments): Investments are only as secure as the institutions with
whom the money is lent or invested. If the organisation fails to repay its obligations then investors could
experience a large capital loss
*Does not include Cash