Consumer price inflation, UK: December 2018

• The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 2.0% in December 2018, down from 2.2% in November 2018.

• The largest downward contributions to change in the 12-month rate came from falls in petrol prices and from air fares, where ticket prices rose between November and December 2018, but by less than a year ago.

• These downward effects were offset by upward contributions from a variety of categories including accommodation services and, to a lesser extent, mobile phone charges, games, toys and hobbies, and food.

• The Consumer Prices Index (CPI) 12-month rate was 2.1% in December 2018, down from 2.3% in November 2018.

The National Statistics status of the Consumer Prices Index including owner occupiers’ housing costs (CPIH) was reinstated on 31 July 2017. A letter from the Director General for Regulation to the National Statistician detailed the actions that were taken to meet the requirements as set out in the CPIH assessment report.

We have illustrated our future approach to measuring changing prices and costs faced by consumers and households using three “use cases”, along with how they relate to the measures that we currently publish and those that are under development. Specifically, they refer to the CPIH as our lead measure of inflation based on economic principles; the Household Costs Indices (HCIs, currently under development with preliminary estimates published for the first time on 19 December 2017) as a set of measures to reflect the change in costs as experienced by households; and the Retail Prices Index (RPI) as a legacy measure that is required to meet existing user needs. Shortcomings of the Retail Prices Index as a measure of inflation, released on 8 March 2018, describes the issues with the RPI.

Consumer price inflation is the rate at which the prices of goods and services bought by households rise or fall. It is estimated by using price indices. One way to understand this is to think of a shopping basket containing all the goods and services bought by households. Movements in price indices represent the changing cost of this basket. Consumer price indices – a brief guide gives an overview of the indices and their uses.

The most common approach to measuring inflation is the 12-month inflation rate, which compares prices for the latest month with the same month a year ago. In any given month, the 12-month rate is determined by the balance between upward and downward price movements of the range of goods and services included in the index.

This release also examines how the various types of goods and services contribute to the change in the 12-month inflation rate between the latest two months. The size and direction of these contributions depends on how prices changed between both the latest two months this year and the same two months last year. For example, the price of a product could make an upward contribution to the change in the rate even if it fell, provided that it fell by less than it did between the same two months a year ago. Explaining the contribution to change in the 12-month rate (2013) covers this concept in more detail.

The CPIH is the most comprehensive measure of inflation. It extends the 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.

Aside from including OOH and Council Tax, CPIH is otherwise identical to CPI. This means that, aside from these two components, the factors contributing to the CPI rate are the same as those contributing to the CPIH. For example, if food is reported as increasing the CPIH rate, it is also acting to increase the CPI rate. The size of the contributions for components other than OOH and Council Tax are exaggerated in the CPI compared with the CPIH because they account for a larger proportion of the overall index.

The CPI is produced at the same level of detail as CPIH, in the accompanying dataset and time series.

The Retail Prices Index (RPI) does not meet the required standard for designation as National Statistics. In recognition that it continues to be widely used in contracts, we continue to publish the RPI, its sub-components and RPIX. To view the all-items RPI and 12-month inflation rate and an at-a-glance comparison with other measures, please see the time series section of the inflation and price indices area of our website. The accompanying dataset and time series provide more detailed information.

The figures in this publication use data collected on or around 11 December 2018.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month rate was 2.0% in December 2018, down from 2.2% in November 2018.

Figure 1 compares the 12-month inflation rates for CPIH and the Consumer Prices Index (CPI), along with the rate for the owner occupiers’ housing costs (OOH) component of CPIH. Given that OOH accounts for around 17% of CPIH, it is the main driver for differences between the CPIH and CPI inflation rates.

Figure 2 shows that price movements for most of the broad categories of goods and services had an upward effect on the Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month rate in December 2018. The exception was clothing and footwear, which had a small downward pull on the rate, with prices falling by 0.9% in the year to December 2018.

The largest upward contribution to the CPIH 12-month rate in December 2018 came from housing and household services, with prices rising by 2.1% on the year. Within this broad group, the largest contributions were from domestic fuels, principally electricity and gas (contributing 0.12 and 0.09 percentage points, respectively, to the CPIH 12-month rate), and from owner occupiers’ housing costs (a 0.20 percentage point contribution). The remaining upward contribution from housing and household services comes principally from Council Tax and rates (a contribution of 0.12 percentage points to the CPIH 12-month rate), which increased by 4.9% in April 2018, and from actual rents for housing (0.05 percentage points).

In December 2018, the upward contribution to the 12-month rate from transport reduced to 0.41 percentage points, from 0.59 percentage points in November 2018. Three-quarters of the reduction in contribution (to the CPIH 12-month rate) was because of motor fuel falling in price. Despite its reduced contribution to the 12-month rate, transport combined with housing and household services continued to account for half of the 12-month inflation rate.

Other large upward contributions came from recreation and culture, and from restaurants and hotels. Within these categories, the most notable contributions were from package holidays and catering services.

Figure 3 shows the extent to which the different categories of goods and services have contributed to the overall CPIH 12-month rate over the last two years. Transport, and food and non-alcoholic beverages prices have been important factors in driving the changes in the rate. As the overall CPIH rate began to level off from April 2017, the contribution from food and non-alcoholic beverages continued to increase, being offset by a fall in the contribution from transport, particularly motor fuels.

The contributions from most of the categories began to fall back in the early months of 2018, leading to a fall in the 12-month rate. However, the pattern has been more mixed since spring 2018, reflecting the relative stability in the headline rate. For example, the contributions from food and non-alcoholic beverages, and clothing and footwear have broadly continued to decline throughout the year. This compares with housing and household services, where we have observed a small increase to the contribution following increases to utility bills. The contribution from transport has fluctuated, rising between April and August 2018 then gradually falling back before December’s larger fall, which helped to reduce the CPIH 12-month rate to its lowest level since January 2017.

Figure 4 shows how each of the main groups of goods and services contributed to change in the Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month rate between November and December 2018. The corresponding figures for the Consumer Prices Index (CPI) can be found in column F of Table 26 in the Consumer price inflation dataset.

The largest downward contribution to change in the CPIH 12-month rate came from transport, principally due to price movements of motor fuels, which contributed 0.14 percentage points to the fall in the CPIH 12-month rate. Falling crude oil prices have led to petrol prices reducing by 6.4 pence per litre between November and December 2018, compared with a rise of 0.8 pence per litre between November and December 2017. The price of petrol at the pump, in December 2018, was the lowest since April 2018. Prices for air and sea fares rose between November and December 2018 but by less than a year ago resulting in downward contributions of 0.06 and 0.03 percentage points, respectively. As is usually the case, air fares rose sharply, increasing by 39.6% between November and December 2018. However, this increase was three-quarters of the magnitude of the increase between November and December 2017. The timing of Christmas in relation to the days for which prices were collected may have been a factor. These effects were partially offset by small upward contributions from the purchase of both new and second-hand cars.

Following the large upward contribution from tobacco reported in November 2018, when prices rose reflecting an increase in duty, there was a large downward contribution in December 2018. Between November and December 2018, tobacco prices fell by 0.1% but prices had risen by 2.7% between the same two months a year ago when tobacco prices rose following an increase in duty announced in the Autumn 2017 Budget.

There were further small downward contributions from miscellaneous goods and services, where prices overall fell between November and December 2018 but were little changed a year ago, and from furniture, household equipment and maintenance, where prices overall rose by less than a year ago.

The largest upward contribution to the change in the 12-month rate came from accommodation services within the restaurants and hotels division. Prices for overnight hotel accommodation rose by 0.9% between November and December 2018 compared with a fall of 3.0% between the same two months in 2017.

A second, smaller upward contribution of 0.03 percentage points came from communication, in particular from mobile phone charges. Prices rose by 0.1% between November and December 2018 but fell by 3.6% a year ago.

Recreation and culture had a small upward contribution where prices fell overall by 0.2% between November and December 2018, compared with a fall of 0.4% a year ago. The main upward contributions came from games, toys and hobbies, dry dog food, and from newspapers and periodicals. There were partially offsetting downward contributions from recording media and data processing equipment items.

Finally, there was a small upward contribution from food. The cost of food remained little changed with prices rising by 0.4% in the year to December 2018. Between November and December 2018, food prices rose by 0.9% compared with a rise of 0.6% between the same two months in 2017.

Figure 5 shows the contribution of owner occupiers’ housing costs (OOH) and Council Tax to the Consumer Prices Index including owner occupiers’ housing costs (CPIH) inflation rate in the context of wider housing-related costs. The contribution from OOH rose slightly between November and December 2018 but has fallen back from a high in October 2016.

Utility bills made a negative contribution during 2015 and 2016 but more recent rises, most notably in electricity prices, have seen its contribution turn positive through 2017 into 2018. Further electricity and gas price rises in autumn 2018 have increased their contribution, so that since September 2018, the electricity, gas and other fuels category has been the largest contributor to the CPIH 12-month rate from housing and household services. Increases in Council Tax starting in 2016 mean that its contribution has also increased over recent years.

The reduction in the contribution from rents is likely to be a result of a policy to reduce social housing rent starting from April 2016, whilst other housing costs (namely regular maintenance and repair, along with water and sewerage services) tend to make a very small contribution to the 12-month rate.

Data relating to the Retail Prices Index (RPI) are available in the accompanying dataset and time series. To view the all-items RPI and 12-month inflation rate and an at-a-glance comparison with other measures, please see the time series section of the inflation and price indices area of our website.

Other important measures of inflation and prices include Producer price indices, the House Price Index and the Index of Private Housing Rental Prices (IPHRP). Prices economic commentary presents further analysis of these in addition to the Consumer Prices Index including owner occupiers’ housing costs (CPIH).

The individual price quotes (for locally-collected items only) and item indices that underpin the consumer price inflation statistics are available.

The Harmonised Index of Consumer Prices (HICP) provides a comparable measure of inflation for each member state of the EU. The UK HICP is identical to the UK Consumer Prices Index (CPI). Further information is available on the Eurostat website.

The Consumer Price Inflation Quality and Methodology Information report contains important information on:

• the strengths and limitations of the data and how it compares with related data

• users and uses of the data

• how the output was created

• the quality of the output including the accuracy of the data

The Consumer Price Indices Technical Manual covers the concepts and methodologies underpinning the indices in more detail.

The CPIH Compendium provides a comprehensive source of information on the Consumer Prices Index including owner occupiers’ housing costs (CPIH), with a focus on the approach to measuring owner occupiers’ housing costs (OOH).

The Consumer price inflation basket of goods and services: 2018 article details the annual review process for the items making up the inflation basket used to calculate the UK consumer price inflation indices and describes the changes in the latest year.

Consumer price inflation, updating weights: 2018 describes the latest changes to the relative weights of items in the inflation basket to ensure they remain representative of current consumer spending patterns.