Bwletin ystadegol:Consumer price inflation, UK: March 2018

• The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 2.3% in March 2018, down from 2.5% in February 2018.

• Since reaching a recent high of 2.8% towards the end of 2017, the rate has fallen back to its lowest since March 2017.

• The largest downward contribution to the change in the rate between February 2018 and March 2018 came from prices for clothing and footwear rising by less than they did a year ago, with the effect coming mainly from a range of items of women’s clothing.

• Price movements for alcoholic drinks and tobacco also made a downward contribution to the change in the rate; this in part reflects changes to the Budget cycle that were introduced in 2017, with tax changes for tobacco being announced in November 2017 instead of March 2018.

• The Consumer Prices Index (CPI) 12-month rate was 2.5% in March 2018, down from 2.7% in February 2018.

As of 18 April 2018, the prices theme day – which encompasses consumer prices, business prices and house prices – has moved from a Tuesday to a Wednesday. Future release dates and further explanation of the reasons for these changes are available in a separate article.

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 dataset.

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 dataset provide more detailed information.

The figures in this publication use data collected on or around 13 March 2018.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month rate was 2.3% in March 2018, down from 2.5% in February 2018. Since reaching a recent high of 2.8% towards the end of 2017, the rate has fallen back to its lowest since March 2017.

Figure 1 compares the 12-month inflation rates for CPIH and 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 all the broad categories of goods and services except communication, and miscellaneous goods and services, had an upward effect on the Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month rate in March 2018. As was the case in February 2018, communication had a small downward effect on the rate, with prices falling by 0.3% in the year to March 2018, largely due to mobile phone charges and bundled telecommunication services. Prior to February 2018, the 12-month inflation rate for communication was last negative in March 2009.

The largest upward contribution to the CPIH 12-month rate continues to come from housing and household 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. In particular, 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 and in particular, motor fuels. So far in 2018, the contribution from a majority of the categories has fallen back, leading to a fall in the 12-month rate.

Figure 4 shows how each of the main groups of goods and services contributed to the change in the Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month rate between February and March 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 the change in the CPIH rate came from clothing and footwear (mainly women’s clothing), where prices rose by 0.7% between February and March 2018 compared with a larger rise of 2.0% between the same two months in 2017. Compared with previous years, the rise between February 2017 and March 2017 was relatively large.

Alcoholic drinks and tobacco also made a large downward contribution, in part due to tobacco duty rises that took effect in March 2017, with no corresponding rise in March 2018. This reflects changes to the Budget cycle that were introduced in 2017, with tax changes being announced in November 2017 instead of March 2018. The downward contribution from alcoholic drinks came mainly from spirits, which tend to be influenced by sales patterns.

The downward contribution from miscellaneous goods and services came mainly from personal care products, such as deodorants. It is important to note that prices for many of these products are highly variable from month to month.

A smaller downward contribution came from furniture and household equipment, with prices falling by 0.1% between February and March 2018 compared with a rise of 0.7% a year ago. Prices tend to rise in March; the March fall in 2018 was the first since the series began in 2005, although it followed a relatively large increase in prices in February 2018. The downward effect came from a range of furniture and furnishings, particularly from leather settees, although these saw an unusually large price rise in February 2018.

Prices for recreational goods and cultural services rose by more between February 2018 and March 2018 than they did in the same period a year ago, which partially offset the downward contributions mentioned. The effect came from a range of goods and services, in particular admissions to live music events. It is important to note that the price movements for music events are heavily dependent on the acts that are playing at the time, meaning that prices can vary considerably from month to month.

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. OOH has consistently been the largest contributor to the rate during the period from 2015 to date, though it has fallen back from a high in October 2016. The contribution from other components has varied.

Utility bills had a negative contribution during 2015 and 2016 but recent rises, most notably in electricity prices, have seen this category rise to become the second-largest contributor. Increases in Council Tax in 2016 and 2017 mean that its contribution has also increased over this period.

Conversely, 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 dataset. 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.