Consumer price inflation, UK: December 2015

• The Consumer Prices Index (CPI) rose by 0.2% in the year to December 2015, compared with a 0.1% rise in the year to November 2015

• Although this is the first month since January 2015 for which the rate has exceeded 0.1%, this continues the trend since early 2015 of the rate being very close to zero

• Movements in transport costs, particularly air fares and to a lesser extent motor fuels, were the main contributors to the rise in the rate

• Downward pressures from prices for alcohol and tobacco along with food and non-alcoholic beverages partially offset the rise

• CPIH (not a National Statistic) grew by 0.5% in the year to December 2015, up from 0.4% in November 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 December 2015, so the 12-month rate measures changes in prices between December 2014 and December 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 December 2014 and December 2015 stood at 0.2%, a small increase compared with November 2015, when the rate was 0.1%. Although this is the first month since January 2015 for which the rate has exceeded 0.1%, this continues the trend since early 2015 of the rate being very close to zero. A rate of 0.2% means that a basket of goods and services that cost £100.00 in December 2014 would have cost £100.20 in December 2015.

As the rate has been very close to zero since early 2015, taken as a whole, households have experienced very little change in prices compared with the same months in 2014. Looking across the year overall, prices for transport costs, food and non-alcoholic beverages and (to a lesser extent) recreational and cultural goods and services have had a downward pull on the rate of inflation. These have been counterbalanced by an upward pull from price movements for other goods and services, most notably restaurant and hotel bills, and education costs such as university tuition fees.

Figure A shows the contributions to the CPI 12-month rate in December 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 November and December 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 increased by 0.1% between November and December 2015, having been unchanged 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, leading to a rise in the CPI 12-month rate.

Between November and December 2015, the only substantial upward contribution to the change in the CPI 12-month rate came from:

• transport: prices, overall, increased by 1.8% between November and December this year, compared with a fall of 0.2% between the same 2 months a year ago. The upward effect on the change in the 12-month rate came principally from air fares and to a lesser extent motor fuels. Air fares increased by 46% between November and December 2015 compared with 19% between the same 2 months a year earlier. This is the largest November to December price increase since 2002, although it is important to note that air fare prices are highly variable. November to December rises in excess of 40% were also seen in 2009 to 2011. Motor fuel prices fell by less than they did a year ago, meaning that they had an upward contribution to the change in the 12-month rate. Petrol prices fell by 3.4 pence per litre this year compared with a larger fall of 6.1 pence a year ago, while diesel fell by 2.3 pence this year compared with 4.8 pence a year ago

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

• food and non-alcoholic beverages: prices, overall, fell by 0.2% between November and December this year, compared with a rise of 0.3% between the same 2 months a year ago. Price changes for cauliflower and potato crisps had the largest downward contribution to the change in the 12-month rate

• alcoholic beverages and tobacco: prices, overall, fell by 1.3%, compared with a smaller fall of 0.2% between the same 2 months a year earlier. Wine and spirits were the main contributors to the change in the 12-month rate, with both showing larger price drops than in the same period a year ago

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).

CPIH is currently undergoing re-assessment to evaluate the extent to which it meets the professional standards set out in the Code of Practice for Official Statistics. CPIH was first assessed in 2013. In August 2014 its National Statistics status was removed pending work to improve the methods for measuring owner occupiers’ housing costs in the 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 Cost 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 December 2015, the 12-month rate (the rate at which prices increased between December 2014 and December 2015) for CPIH stood at 0.5%, up from 0.4% in November 2015. The difference between the CPI and CPIH annual rates in December 2015 was 0.3 percentage points, the same as the difference in November 2015.

Owners occupiers' housing costs increased by 0.2% between November and December 2015, the same as between these months a year earlier. This means that it had a very small impact on the change on the CPIH 12 month rate between the two months.

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.

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 December 2015, the 12-month rate for RPIJ stood at 0.5%, up from 0.3% in the year to November 2015.

The RPI 12-month rate for December 2015 stood at 1.2%, meaning that it was 0.7 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 34.3% over the 10-year period, compared with 27.2% as measured by RPIJ. The use of the Carli formula has therefore added 7.1 percentage points to the change in prices over the last 10 years.

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.

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