A hidden war on inflation is raging.In addition to the public fight over how to defuse the looming cost of living crisis, there is also a guerrilla war over how the UK should respond inflation is measurable if the calculation can be changed retrospectively.

Evidence of the battle is published every month by the official figures’ guardian of truth, the Office for National Statistics. Its Consumer Price Bulletin publishes not one but three different inflation rates. When the next batch is announced, two bets are pretty safe: All three are different, and they’ll be higher than the 4.6%, 5.1% or 7.1% announced last December.

Great range. The highest is 2.5 percentage points higher than the lowest. If your pension is linked to this, the increase will be 54% higher than when it is linked to the minimum pension. However, the government’s latest plan does just that.

The lowest interest rate happens to be the ONS’s preferred indicator, called CPIH, which stands for Consumer Price Index (including housing). It has been at the top of ONS press releases and briefings since its launch in March 2017. To find any other measure, you’ll need to drill down or even download a spreadsheet to find all the other measures.

Nonetheless, the CPIH is not reported by the media, nor is it used for any practical purpose in the real world, other than Ofwat for setting controlled water prices. It has been criticised for using rent changes to represent changes in housing costs for 65 per cent of owner-occupiers.

Until 2011, only one measure of inflation was used – the Retail Price Index or RPI. It is currently the highest of the three and has been used since its introduction in 1947 for any official calculation related to the cost of living, including wage negotiations. It is so common that it has been pushed back by ONS researchers to the reign of Edward I in 1270, and is still used in historical calculations to tell us how much a Victorian or Elizabethan £100 is ‘worth’ now.

But statisticians say the RPI is flawed and wants to replace it with a more internationally favoured measure, the Consumer Price Index or CPI (no H yet). Cynics say the government has largely embraced their advice as the CPI is lower than the RPI.

This is almost entirely due to the so-called formula effect. RPI aggregates multiple prices using a simple arithmetic mean or average – add them up and divide by how many. CPI uses the geometric mean – multiplying the prices and taking the nth root, where n is the quantity of the item. For positive numbers that always give the smaller number. Since January 2015, inflation has fallen by an average of 0.81 percentage points due to this formula effect. Last month, the difference was 2 percentage points at 1.16.

The CPI has been published since 1997, but it was not until 2011 that it became the government’s official measure of inflation, and was used to boost benefits – saving a cumulative £2bn a year – and has replaced the RPI for other purposes, such as the abolition of tax breaks – — that is, when they are not frozen to save even more money.

It took another hit two years later when the RPI was declared by the Office for National Statistics to no longer be an official statistic. The Authority and ONS recommend against the use of RPI.

Nonetheless, the ONS publishes the RPI monthly as it is used in many calculations, especially where it ultimately saves government money, such as raising controlled rail fares – which reduces Treasury subsidies – and student loan charges Interest – This means paying more money.

The government now plans to keep the RPI but redefine its algorithm so in effect it becomes CPIH

It is also incorporated into the contracts of many corporate pensions, which specify the RPI for the annual cost of living increase. Most pension plans whose contracts do not specify an RPI have made changes to the CPI – a welcome relief to the fund if not for pensioners. But in the case of a designated RPI, the Supreme Court ruled in November 2018 that it cannot be changed.

The biggest problem facing the government is £819bn of index-linked gilt bonds. They make up nearly a quarter of all gilts and are tied to the RPI – which now returns 7.1%, compared to just 0.825% for the 25-year gilt issued in January 2021. The government now plans to keep the RPI, but redefine its algorithm, so in effect it becomes CPIH. This will be implemented in the RPI released in February 2030. Holders of index-linked gilts and others will not be compensated – Insight Investment has saved the government £100bn over the life of the bond and reduced pension value by 10% to 15%.

In December, the High Court granted the three pension funds with 450,000 members the right to challenge the plans. A judicial review hearing is expected in the summer. The government’s defense could be released as early as February.

The RPI battle continues.

Paul Lewis, who airs ‘Money Box’ on BBC Radio 4 after 12pm on Saturdays, has been a freelance financial journalist since 1987. Twitter: @paullewismoney