Bwletin ystadegol:Consumer price inflation, UK: September 2018

• The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 2.2% in September 2018, down from 2.4% in August 2018.

• The largest downward contribution came from food and non-alcoholic beverages where prices fell between August and September 2018 but rose between the same two months a year ago.

• Other large downward contributions came from transport, recreation and culture, and clothing.

• Partially offsetting upward contributions came from increases to electricity and gas prices.

• The Consumer Prices Index (CPI) 12-month rate was 2.4% in September 2018, down from 2.7% in August 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 September 2018.

From September 2018, we will be publishing the main factors contributing to the differences between the unrounded inflation rates for the CPIH and the RPI.

These differences are broken down into:

• mortgage interest payments

• other housing components excluded from the CPIH

• imputed rents (included in CPIH and excluded from RPI)

• other differences in the coverage of goods and services

• the formula effect

The final component titled "other differences including weights" is derived as a residual. These series are published as Table 5a in the consumer price inflation dataset while the corresponding figures for the Consumer Prices Index (CPI) can be found in Table 5b.

For this publication, we have reviewed and improved the published differences between the unrounded inflation rates for the CPI and the RPI – published as Table 5b in the consumer price inflation dataset. These minor revisions (of between plus and minus 0.02 percentage points) do not impact the headline measures of inflation and their components, but the supplementary statistics designed to provide users with further information on the differences between CPI and RPI.

Furthermore, the supplementary analysis aggregate differences are not impacted and only the components are. This is due to the household services maintenance policy item, introduced in 2010, being reclassified so that it is no longer treated as part of the "other housing components excluded from the CPI" aggregate. As a result, the "total housing components excluded from CPI", the "other housing components excluded from CPI" and the "other differences in coverage of goods and services" series have been recalculated from 2010 onwards. The headline difference is unaffected by this change.

While investigating the classification of these series, we identified an isolated one-off issue, which resulted in a minor error (of positive 0.01 percentage points) to the published value for "other differences including weights" in September 2012. This issue is separate to the reclassification outlined in this section and has no impact on the headline series, or any other series or data point.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month rate was 2.2% in September 2018, down from 2.4% in August.

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 September 2018. The exceptions were clothing and footwear, and miscellaneous goods and services, which both had a small downward pull on the rate. Over the last 12 months, prices for clothing and footwear fell by 0.4% with a small downward effect coming from garments. Prices for miscellaneous goods and services fell by 0.3% in the 12 months to September 2018. Within this category, the main downward effect was from financial services, where prices fell by 6.2% on the year.

The largest upward contribution to the rate continues to come from transport, with prices rising by 5.5% in the year to September 2018. The largest contribution within the transport group continues to come from motor fuels.

Other large upward contributions came from housing and household services (principally from domestic utilities and owner occupiers’ housing costs) and from recreation and culture. Electricity prices rose by 9.3% between September 2017 and September 2018, the highest September 12-month rate since (September) 2011 when prices rose by 12.9%. Within recreation and culture, notable contributions came from package holidays, cultural services and games, toys and hobbies.

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.

From early 2018, the contributions from most of the categories began to fall back, leading to a fall in the 12-month rate. This was true of transport between January and April. However, its contribution has more than doubled between April and August, before partially falling back in September.

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 August and September 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 12-month rate came from food and non-alcoholic beverages, where prices fell by 0.1% between August and September 2018 compared with a rise of 0.8% between the same two months a year ago. The main effects came from meat where prices fell, between August and September, this year but rose a year ago and from chocolate.

Transport also had a downward effect, with passenger transport fares showing larger price falls between August and September 2018 than between the same two months a year ago. The largest effect came from sea fares with a smaller downward effect from air fares. Within transport, there was a further small downward effect from motor fuels. Petrol prices rose by 1.7 pence per litre between August and September 2018 compared with a larger rise of 2.5 pence per litre between August and September 2017. Similarly, diesel rose by 1.5 pence for the same time period this year compared with 2.5 pence a year ago. These effects were partially offset by a small upward contribution from second-hand cars where prices rose by more than a year ago.

The main downward effects to recreation and culture came from cultural services, where theatre admission prices fell this year but rose a year ago, and from games, toys and hobbies, specifically from computer games. These games are heavily dependent on the composition of bestseller charts, often resulting in large overall price changes from month to month. There were partially offsetting small upward contributions from computer software, tablet computers, DVDs and package holidays.

The final, large downward effect came from clothing and footwear, with average prices rising by 3.1% between August and September 2018 compared with a rise of 3.9% between the same two months a year ago. This downward effect came principally from women’s clothing with smaller downward contributions from children’s clothing and women’s footwear. There was a partially offsetting upward movement from menswear.

The largest upward contribution to the change in the 12-month rate came from housing and household services where prices for electricity and gas rose between August and September 2018 but were unchanged between the same two months a year ago.

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. Electricity and gas price rises, between August and September 2018, have meant that their contribution has overtaken OOH as the largest housing component contributor to the CPIH 12-month rate. The contribution from OOH has fallen back from a high in October 2016 and has been the largest component contributor to housing each month since March 2014.

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. Increases in Council Tax starting in 2016 mean that its contribution has also increased over this period.

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.