Consumer price inflation, UK: February 2016

The Consumer Prices Index (CPI) rose by 0.3% in the year to February 2016, unchanged from January 2016.

This maintains the position seen over the last few months of a rate which is a little above zero.

The contributions to change in the CPI rate from the detailed categories were relatively small compared with most months.

The largest downward contribution came from the transport sector, from price changes for items such as road passenger transport, second-hand cars and bicycles.

Rising food prices, particularly for vegetables, offset this.

CPIH (not a National Statistic) grew by 0.6% in the year to February 2016, unchanged from January 2016.

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 February 2016, so the 12-month rate measures changes in prices between February 2015 and February 2016.

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 (2013).

Latest figure and long-term trend

The CPI 12-month rate (the amount prices change over a year) between February 2015 and February 2016 stood at 0.3%. This means that a basket of goods and services that cost £100.00 in February 2015 would have cost £100.30 in February 2016.

The rate is unchanged from January 2016 and follows 3 consecutive months of small rises although it remains relatively close to zero and low in the historical context. This continues the position seen since the beginning of 2015. Looking at the last 14 months 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 February 2016 compared with the contributions to the 12-month rate a year earlier.

Figure B shows the CPI 12-month rate for 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.

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 January and February 2016 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 (2013) is a diagram explaining the calculation.

The CPI rose by 0.2% between January 2016 and February 2016, compared with a rise of 0.3% between the same 2 months a year earlier. The slight difference in the monthly movements was not sufficient to change the 12-month rate due to rounding.

Between January and February 2016, the main downward contribution to change in the CPI 12-month rate came from transport where prices, overall, were unchanged between January and February this year compared with a rise of 0.4% between the same 2 months a year ago. The largest downward effects came from road passenger transport and bicycles, where prices fell this year but rose a year ago, and second-hand cars, where prices fell by more than a year ago.

There was a smaller downward contribution from miscellaneous goods and services, particularly from personal care products such as toothpaste and moisturising cream.

The main upward contribution to change in the CPI 12-month rate between January and February 2016 came from food and non-alcoholic beverages where prices, overall, rose by 0.1% between January and February 2016, compared with a fall of 0.2% between the same 2 months a year ago. The overall upward contribution came from a variety of product groups, most notably vegetables and milk, cheese and eggs.

There were smaller upward contributions from restaurants and hotels (particularly from hotel accommodation) and furniture, household equipment and maintenance.

Figure C shows the contributions to change from each part of the CPI basket of goods and services.

CPIH has been re-assessed to evaluate the extent to which it meets the professional standards set out in the Code of Practice for Official Statistics and the assessment report published on 3 March 2016. The report includes a number of requirements that need to be implemented for CPIH to regain its status as a National Statistic. The actions taken to address these requirements will be reported to the UK Statistics Authority by September 2016.

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 16.5% 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 February 2016, the 12-month rate (the rate at which prices increased between February 2015 and February 2016) for CPIH stood at 0.6%, unchanged from January 2016. The difference between the CPI and CPIH annual rates in February 2016 was 0.3 percentage points, the same as the difference in January 2016.

Owners occupiers’ housing costs increased by 0.1% between January and February 2016, the same as between these months a year earlier. This meant they had a negligible impact on the change in the CPIH 12-month rate between the 2 months.

Figure D shows the CPIH and OOH component 12-month rates for the last 10 years. 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 (2013).

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 February 2016, the 12-month rate for RPIJ stood at 0.6%, down from 0.7% in the year to January 2016.

The RPI 12-month rate for February 2016 stood at 1.3%, 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.

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 dataset.

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