Consumer price inflation, UK: June 2016

The Consumer Prices Index (CPI) rose by 0.5% in the year to June 2016, compared with a 0.3% rise in the year to May.

The June rate is a little above the position seen for most of 2016, though it is still relatively low historically.

Rises in air fares, prices for motor fuels and a variety of recreational and cultural goods and services were the main contributors to the increase in the rate.

These upward pressures were partially offset by falls in the price of furniture and furnishings and accommodation services.

CPIH (not a National Statistic) rose by 0.8% in the year to June 2016, up from 0.7% in May.

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. A way to understand this is to think of a very large shopping basket containing all the goods and services bought by households. Movements in price indices represent the changing cost of this basket. The infographic How is the Consumer Price Index calculated? 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 June 2016, so the 12-month rate measures changes in prices between June 2015 and June 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 UK 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 June 2015 and June 2016 stood at 0.5%. This means that a basket of goods and services that would have cost £100.00 in June 2015 cost £100.50 in June 2016.

The rate is the same as observed for March and slightly above the 0.3% recorded for all other months of 2016. The rates for 2016 to date are still relatively low but are above those generally experienced in 2015, which was a year of historically low inflation, with the rate being at or around zero for much of the year. The largest downward pull on inflation in June 2016 and for 2016 to date comes from prices for food and non-alcoholic beverages. There also continues to be a downward pressure from transport prices, but this has eased during 2016 from the 2015 position. Upward pressures come from a variety of categories, most notably restaurant and hotel bills.

Figure A shows the contributions to the CPI 12-month rate in June 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 May and June 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. The diagram explaining the contribution to change in the 12-month rate (2013) explains the calculation.

The CPI rose by 0.2% between May and June 2016, compared with a negligible change between the same 2 months a year earlier. The 1-month movement was therefore 0.2 percentage points higher this year compared with a year ago, leading to a rise in the CPI 12-month rate.

Between May and June 2016, the main upward contributions to the change in the CPI 12-month rate came from the following groups.

Transport: prices, overall, rose by 1.1% between May and June this year compared with a rise of 0.2% between the same 2 months a year ago. Within transport, the largest upward effect came from air fares, which rose by more than a year ago, with the main contribution coming from European routes. The 10.9% rise in fares this year was the largest May to June movement on record although it is important to note that air fares are highly variable. Motor fuel prices also rose by more than a year ago, with petrol and diesel prices rising by 2.3 and 2.6 pence per litre respectively between May and June 2016. A smaller upward effect came from changes in sea transport fares, though this was offset by a downward pull from rail transport.

Recreation and culture: prices, overall, rose by 0.6% this year compared with a fall of 0.1% a year ago. The upward contribution came principally from games, toys and hobbies (particularly computer games) with prices rising between May and June 2016 compared with a fall last year. Other smaller upward effects came from cultural services and books.

Communication: the upward contribution came from telephone equipment and services with prices, overall, rising by 0.6% between May and June this year compared with a fall of 0.2% between the same 2 months a year ago. The effect came principally from mobile phone charges which fell this year but by less than a year ago.

The main downward contributions to the change in the CPI 12-month rate between May and June 2016 came from the following groups.

Furniture, household equipment and maintenance: prices, overall, fell by 0.3% between May and June this year but rose by 0.3% between the same 2 months a year ago. The downward contribution came almost entirely from furniture and furnishings, particularly kitchen units.

Restaurants and hotels: prices, overall, rose by 0.1% this year compared with a larger rise of 0.4% a year ago. The downward effect came from accommodation services, where prices for overnight hotel accommodation fell this year but rose a year ago.

Figure C shows the contributions to the 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 Statistics on consumer Price Inflation including Owner Occupiers’ Housing Costs, 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, the basket of goods and services and the method of deriving the weights are the same as for the Consumer Prices Index (CPI), with the exception of OOH. A full description of how CPIH is compiled is given in the Consumer Price Indices technical manual and in various papers published on the prices guidance and methodology webpage.

In June 2016, the 12-month rate (the rate at which prices increased between June 2015 and June 2016) for CPIH stood at 0.8%, up from 0.7% in May 2016. The difference between the CPI and CPIH annual rates in June 2016 was 0.3 percentage points, down from 0.4 percentage points in May. This narrowing was principally due to rounding. Owner occupiers’ housing costs increased by 0.1% between May and June 2016, the same as the movement between these months a year earlier. This meant that 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. More CPIH data are available in Tables 21 to 34 of the Consumer Price Inflation dataset.

In accordance with the Statistics and Registration Service Act 2007, the Retail Prices Index (RPI) 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 RPI and 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, and so on 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 June 2016, the 12-month rate for RPIJ stood at 0.9%, up from 0.7% in May.

The RPI 12-month rate for June 2016 stood at 1.6%, 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, 0.6 percentage points lower than the RPI.

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

If you would like 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.