The Office for National Statistics (ONS) has decided to retain the way the retail prices index(RPI) is calculated after a consultation with the industry.
Instead, it has recommended a new additional inflation index should be created to meet international standards.
However, the existing RPI will continue to be used for the uprating of private sector pensions. The Treasury also confirmed it would use the current RPI measure for calculating the return on both old and new index-linked bonds.
Its decision means that from March 2013, the ONS will publish a new version of the RPI alongside the existing one.
The new index will use the same formula as the CPI for calculating average prices, meaning this measure will usually rise more slowly than the original version.
The ONS decided against changing the way in which RPI is calculated after experts warned the move would have big implications for pension funds that hold index-linked gilts.
"There is significant value to users in maintaining the continuity of the existing RPI's long time series without major change, so that it may continue to be used for long-term indexation and for index-linked gilts and bonds," said the ONS.
"Therefore, while the arithmetic formulation [of the RPI] would not be chosen were ONS constructing a new price index, the National Statistician recommended that the formulae used at the elementary aggregate level in the RPI should remain unchanged."
The changes would have saved the Treasury billions of pounds a year in interest on government bonds.
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