Consumer price inflation, UK: July 2015

• The Consumer Prices Index (CPI) grew by 0.1% in the year to July 2015, up from 0.0% in the year to June 2015
• A smaller fall in clothing prices on the month compared with a year ago was the main contributor to the rise in inflation
• Falling prices for food and non-alcoholic beverages partially offset the rise
• CPIH (not a National Statistic) grew by 0.4% in the year to July 2015, up from 0.3% in June 2015

Consumer price inflation is the speed at which the prices of goods and services bought by households rise or fall. Consumer price inflation is estimated by using price indices. A way to understand a price index is to think of a very large shopping basket containing all the goods and services bought by households. The price index estimates changes to the total cost of this basket. An infographic explains how consumer price inflation is calculated. Consumer price indices are published monthly.

A price index can be used to measure inflation in a number of ways. The most common is to look at how the index has changed over a year. This is calculated by comparing the price index for the latest month with the same month a year ago. This is known as the 12-month inflation rate. This bulletin measures inflation to July 2015, so the 12-month rate measures changes in prices between July 2014 and July 2015.

A range of measures of consumer price and other price inflation are published. A tale of many price indices summarises information on the different measures.

What is 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. For more information see Users and uses of consumer price inflation statistics (100.5 Kb Pdf).

Latest figure and long-term trend

The CPI 12-month rate (the amount prices change over a year) between July 2014 and July 2015 stood at 0.1%. This means that a basket of goods and services that cost £100.00 in July 2014 would have cost £100.10 in July 2015. This continues the trend of the previous 5 months when inflation had been at or around 0.0%.

In the year to July 2015, food prices fell by 2.7% and prices of motor fuels fell by 11.4%. These 2 groups have provided some of the largest downward contributions to the 12-month rate during 2015. In July 2015, the food and motor fuels groups in total reduced the CPI 12-month rate by approximately 0.7 percentage points. Historically, price movements for these products have been among the main causes of inflation. An article was published in November 2014 which outlined some possible factors that may be affecting prices (477.2 Kb Pdf).

Figure A shows the contributions to the CPI 12-month rate in July 2015 compared with the contributions to the 12-month rate a year earlier. A larger version of the chart can be viewed by clicking on it (HTML version only).

Figure B shows the CPI 12-month rate over the last 10 years. Table A shows the CPI 1-month rate (the amount prices change between 2 consecutive months), 12-month rate and index values for the last year. A larger version of the chart can be viewed by clicking on it (HTML version only).

Consumer Prices Index (CPI): What are the main movements?

This section explains which goods and services had the biggest impact on the change to the 12-month rate between June and July 2015 and, where relevant, considers the longer-term inflationary trends for these goods and services.

The change in the CPI 12-month rate can be calculated by comparing the 12-month rates for 2 consecutive months. An alternative, and equally valid, approach is to calculate it by comparing the price change between the latest 2 months and the price change between the same 2 months a year ago. Explaining the contribution to change in the 12-month rate (37.1 Kb Pdf) is a diagram explaining the calculation.

The CPI fell by 0.2% between June and July 2015 compared with a larger fall of 0.3% between the same 2 months a year earlier. The 1-month movement was therefore 0.1 percentage points higher this year compared with a year ago, resulting in a rise in the CPI 12-month rate.

By far the largest upward contribution to the change in the CPI 12-month rate between June and July 2015 came from:

• clothing and footwear: prices, overall, fell by 3.4% between June and July this year compared with a larger fall of 5.7% between the same 2 months a year ago. Prices always fall between June and July during the summer sales period. The price fall between June and July this year was in line with recent years. However, the price fall between June and July last year was larger than usual between these 2 months and followed an atypical price increase between May and June 2014. At the time there were reports of a shift in the timing of the summer sales compared with previous years. The downward contribution came from price movements across the garments sector

There were smaller, but notable, upward contributions to the change in the CPI 12-month rate from:

• transport services: prices, overall, rose by 6.6% between June and July this year, compared with a smaller rise of 4.6% between the same 2 months a year ago. The upward contribution came from most transport fares – notably air fares

• recreation and culture: prices, overall, rose by 0.2% between June and July this year, compared with a fall of 0.2% between the same 2 months a year ago. The main upward contribution came from price movements in the games, toys and hobbies sector – notably computer games and consoles

• miscellaneous goods and services: prices, overall, remained little changed between June and July this year, compared with a fall of 0.5% between the same 2 months a year ago. The upward contribution came from a range of services – notably bank overdraft charges, where a number of banks removed or reduced some of their charges last year

The largest downward contributions to the change in the CPI 12-month rate between June and July 2015 came from:

• food and non-alcoholic beverages: prices, overall, fell by 0.7% between June and July this year, compared with a smaller fall of 0.2% between the same 2 months a year ago. The downward contribution came from price movements in most sectors – notably in the milk, cheese and eggs sector – where the prices of 2 pint cartons of shop bought milk have fallen. There was a partially offsetting contribution from rising prices in the bread and cereals sector

• fuels and lubricants: average petrol prices rose by 0.1p and diesel prices fell by 2.5p between June and July this year to stand at 116.5p and 118.7p per litre respectively. This compares with a rise of 1.0p per litre on petrol and no change on diesel between the same 2 months in 2014

• restaurants and hotels: prices, overall, rose by 0.1% between June and July this year, compared with a larger rise of 0.4% a year ago. The downward contribution came from price movements across the whole sector

Figure C shows the contributions to change from each part of the CPI basket of goods and services. A larger version of the chart can be viewed by clicking on it (HTML version only).

The National Statistics status of CPIH has been discontinued pending work to investigate and improve the method for measuring owner occupiers' housing costs in this index. Full details can be found on the UK Statistics Authority website and in an explanatory note (313.9 Kb Pdf) on our website. The improvements from the resulting development work were introduced as part of the February 2015 dataset with the historical series revised back to 2005. Further information on the changes is available in 2 articles: Improvements to the measurement of Owner Occupiers’ Housing Costs and Private Housing Rental Prices (2.48 Mb Pdf) and Revising the weight of Owner Occupiers’ Housing in CPIH (197.4 Kb Pdf).

CPIH is a measure of UK consumer price inflation that includes owner occupiers’ housing costs (OOH). These are the costs of housing services associated with owning, maintaining and living in one’s own home. OOH does not include costs such as utility bills, minor repairs and maintenance, which are already included in the index.

CPIH uses an approach called rental equivalence to measure OOH. Rental equivalence uses the rent paid for an equivalent house as a proxy for the costs faced by an owner occupier. In other words this answers the question “how much would I have to pay in rent to live in a home like mine?” for an owner occupier. OOH does not seek to capture increases in house prices. Although this may be inconsistent with some users’ expectations of measures of OOH, the inclusion of an asset price and therefore capital gains would make the index less suitable for a measure of consumption. OOH currently accounts for 17.8% of the expenditure weight of CPIH. This compares with a weight of 19.5% in 2005.

Currently, the method of calculation, the population coverage and the basket of goods and services are the same as the Consumer Prices Index (CPI), with the exception of OOH. The method of deriving the weights for CPIH and the data used for these are also the same as for CPI, with the exception of OOH. This can result in some differences from the CPI.

In July 2015, the 12-month rate (the rate at which prices increased between July 2014 and July 2015) for CPIH stood at 0.4%, up from 0.3% in June 2015. The difference between the CPI and CPIH annual rates in July 2015 was 0.3 percentage points, the same as the difference in June, despite a small downward contribution from owner occupiers’ housing costs.

Figure D shows the CPIH and OOH component 12-month rates since January 2006 (the earliest date for which the official CPIH 12-month rate can be calculated). The CPI 12-month rate has been included for comparative purposes. Table B shows the CPIH and OOH component 1-month and 12-month rates and index values for the last year. A larger version of the chart can be viewed by clicking on it (HTML version only).

In accordance with the Statistics and Registration Service Act 2007, the Retail Prices Index and its derivatives have been assessed against the Code of Practice for Official Statistics and found not to meet the required standard for designation as National Statistics. The full assessment report can be found on the UK Statistics Authority website.

The RPI is a long-standing measure of UK inflation that has historically been used for a wide range of purposes such as the indexation of pensions, rents and index-linked gilts. For further information see Users and uses of consumer price inflation statistics (100.5 Kb Pdf) .

RPIJ is an improved variant of the Retail Prices Index, which is calculated using formulae that meet international standards. The rationale for creating RPIJ was to give users a better alternative to the RPI if their needs were for a measure of inflation based on the same population, classifications, weights etc, as the RPI. Currently, RPIJ also acts as an analytical series in that it allows users to see the impact of using the Jevons (which meets international standards) in place of the Carli formula (which does not meet international standards) in the RPI. The use of the different formulae at the elementary aggregate level is currently the only difference between the 2 indices. Detailed goods and services indices are not produced for RPIJ.

In July 2015, the 12-month rate for RPIJ stood at 0.4%, unchanged from June 2015.

The RPI 12-month rate for July 2015 stood at 1.0%, meaning that it was 0.6 percentage points higher than it would have been had it used formulae that meet international standards.

Figure E shows the RPI and RPIJ 12-month rates for the last 10 years. Over this period the RPIJ 12-month rate has been, on average, 0.5 percentage points lower than the RPI but the difference has increased to an average of 0.6 percentage points over the last 3 years. Cumulatively, inflation as measured by the RPI is 34.5% over the 10-year period, compared with 27.6% as measured by RPIJ. The use of the Carli formula has therefore added 6.9 percentage points to the change in prices over the last 10 years. A larger version of the chart can be viewed by clicking on it (HTML version only).

Table C shows the RPI and RPIJ 1-month and 12-month rates and index values for the last year.

For users who want to understand the causes of the difference between the CPI and RPI, please see Table 5 in the Consumer Price Inflation Reference Tables of the July 2015 release.

Table D outlines where data for all consumer price inflation statistics can be found.