1. Introduction

This note explains the estimated impact of implementing measures announced in the November 2017 Budget, previous budgets and pre-budget reports on the Consumer Prices Index including owner occupiers’ housing costs (CPIH), CPI and the Retail Prices Index (RPI).

It does not include an estimate of the impact of the levy on soft drinks with added sugar content due to come into effect in April 2018. This is because there are likely to be changes in producer and consumer behaviour as a result of the new measures, which make it difficult to predict the impact on consumer price inflation. There are also numerous practical issues with identifying which products from our basket of goods will be eligible for the tax and to what extent they will be affected. These factors combine to make it difficult to produce an estimate within any useful degree of accuracy.

The estimated contributions in this document assume all announced changes are passed on immediately and in full to consumers as soon as they come into effect. In practice, this is unlikely: for instance, changes to tobacco and alcohol duties generally affect the index over a period of several months as stocks deplete.

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2. Budget measures that will impact CPIH, CPI and RPI

Table 1 details the measures announced in the Budget that will impact on the Consumer Prices Index including owner occupiers’ housing costs (CPIH), CPI and Retail Prices Index (RPI) one-month rates in the financial years ending 2018 and 2019, along with the estimated magnitude of the effect. We have not included an estimate of the impact of the minimum excise tax for cigarettes because the effect on the top-level inflation figures is expected to be negligible.

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3. Impact of Budget on the CPIH, CPI and RPI one-month rate

Table 2 presents a comparison of the impact on the Consumer Prices Index including owner occupiers’ housing costs (CPIH), CPI and Retail Prices Index (RPI) one-month rates of the budget measures that were implemented in the financial year ending 2018 and those known measures that will be implemented in the financial year ending 2019. There is also the possibility of further changes being announced in the November Budget 2018 which will impact in the financial year ending in 2019.

The known measures that will be implemented in the financial year ending 2019 are estimated to increase the CPIH one-month rate by approximately 0.02 percentage points, the CPI one-month rate by approximately 0.02 percentage points and the RPI one-month rate by approximately 0.01 percentage points.

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4. Cumulative effects of the budget on the CPIH, CPI and RPI 12-month rate

The following tables show the cumulative effects on the all items Consumer Prices Index including owner occupiers’ housing costs (CPIH), CPI and Retail Prices Index (RPI) 12-month rates of the budget measures that were implemented in financial year ending 2018 and known measures that will be implemented in financial year ending 2019. They also show the likely timing of effects on the CPIH, CPI and RPI 12-month rates, assuming all announced changes are passed on immediately and in full to consumers as soon as they come into effect. There is also the possibility of further changes being announced in the November Budget 2018 which will impact in the financial year ending in 2019.

Effects on the CPIH 12-month rate

It is estimated the known budgetary measures implemented in financial year ending 2019 will add 0.02 percentage points to the CPIH one-month rate. This means that the CPIH 12-month rate is estimated to decrease by 0.08 percentage points because the impact of the measures implemented in financial year ending 2018 was 0.10 percentage points.

Effects on the CPI 12-month rate

It is estimated the known budgetary measures implemented in financial year ending 2019 will add 0.02 percentage points to the CPI one-month rate. This means that the CPI 12-month rate is estimated to decrease by 0.10 percentage points because the impact of the measures implemented in financial year ending 2018 was 0.12 percentage points.

Effects on the RPI 12-month rate

It is estimated the known budgetary measures implemented in financial year ending 2019 will add 0.01 percentage points to the RPI 1-month rate. This means that the RPI 12-month rate is estimated to decrease by 0.14 percentage points because the impact of the measures implemented in financial year ending 2018 was 0.15 percentage points.

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5. Background notes

CPIH extends the Consumer Prices Index (CPI) to include a measure of the costs associated with owning, maintaining and living in one’s own home, known as owner occupiers’ housing costs (OOH), along with council tax. Both of these are significant expenses for many households, and are not included in the CPI.

The CPI is a measure of consumer price inflation produced to international standards and in line with European regulations. First published in 1997 as the Harmonised Index of Consumer Prices (HICP), the CPI is the inflation measure used in the government’s target for inflation. The CPI is also used for purposes such as uprating pensions, wages and benefits and can aid in the understanding of inflation on family budgets.

The RPI is a legacy measure of UK inflation that continues to be used for purposes such as the indexation of pensions, rents and index-linked gilts.

This note is prepared simply as a helpful guide to users of the CPIH, CPI and RPI. The Office for National Statistics accepts no liability whatsoever for losses of any kind arising as a result of reliance on this note.

The effects of the budgets shown in this note are estimates only.

Percentage point contributions to the CPIH, CPI and RPI one-month change are based on average retail prices as measured in the October 2017 indices.

No estimate has been made of any price changes resulting from other budget measures, direct or otherwise.

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Manylion cyswllt ar gyfer y Erthygl

James Tucker
cpi@ons.gov.uk
Ffôn: Consumer Price Inflation Enquiries: +44 (0)1633 456900 Consumer Price Inflation recorded message (available after 9.45am on release day): Telephone: + 44 (0)800 0113703