Bwletin ystadegol:UK consumer price inflation: August 2017

• The Consumer Prices Index including owner occupiers’ housing costs 12-month inflation rate was 2.7% in August 2017, up from 2.6% in July 2017.
• Rising prices for clothing and motor fuels were the main contributors to the increase in the rate between July and August 2017.
• Air fares also rose between July and August but the rise was smaller than between the same two months a year ago and so resulted in a partially offsetting, downward contribution.
• The Consumer Prices Index (CPI) 12-month rate was 2.9% in August 2017, up from 2.6% in July 2017.

The Bank of England were granted exceptional pre-release access to an estimate of the Consumer Prices Index (CPI) at 9am on Friday, 8 September 2017 so that the data were available for the Monetary Policy Committee meeting held on that day. Correspondence with the Bank of England is available.

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) 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.

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 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 15 August 2017.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month rate was 2.7% in August 2017, up from 2.6% in July. The rate was last higher in April 2012 at 2.8% though the August figure equals the 2.7% observed in May this year.

All else being equal, the depreciation of sterling seen in 2016 and particularly following the outcome of the EU referendum would increase the prices producers pay for imported goods. Whilst depreciation is likely to increase the cost of imports, other factors determine whether these are passed on to consumers. For example, there were reports of businesses having measures to protect against exchange rate changes in the short-term, often reported as being up to spring this year.

The inflation rate for a range of goods has, however, picked up since last year and the overall rate in the UK is higher than in most other EU countries, including all of the larger western European nations. Depreciation may have influenced this but increasing global commodity prices could also be a factor in the rise in inflation in the UK and the EU overall.

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 all 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 August 2017. Their contributions have been positive in all months from March this year. The corresponding figures for the Consumer Prices Index (CPI) can be found in column E of Table 26 in the CPI dataset.

Prices in all broad categories were higher in August 2017 than a year ago with four showing their highest 12-month rate since 2012 or earlier; namely clothing and footwear, furniture and household goods, restaurants and hotels, and miscellaneous goods and services. The rate of 4.6% for clothing and footwear is the highest on record for the CPIH (with the series starting in 2006). This is reflected in the increase in the category’s contribution to the headline rate since the beginning of 2017. The rise in inflation in this category may reflect changes in the exchange rate impacting on the cost of imported clothing since clothing and footwear is one of the most import-intensive categories in the CPIH basket. This is discussed further in Prices economic commentary: September 2017.

The largest upward contribution to the 12-month rate continues to come from housing and household services, mainly from owner occupiers’ housing costs and, to a lesser extent, from electricity prices and Council Tax.

Figure 3 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 July and August 2017. The corresponding figures for the Consumer Prices Index (CPI) can be found in column F of Table 26 in the CPI dataset.

The largest upward effect came from clothing and footwear, with average prices rising by 2.4% between July and August 2017 compared with a smaller rise of 1.0% between the same two months a year ago. Prices of clothing and footwear usually rise between July and August as autumn ranges start to enter the shops following the summer sales season. The rise was larger this year than in 2016 and may have been influenced by the proportion of items on sale, which fell by more between July and August this year than between the same two months a year ago. The upward effect came from clothing and, in particular, women’s clothing.

There was a smaller upward effect from a range of recreational and cultural goods and services, where prices rose slightly by 0.1% on the month compared with a fall of 0.3% between July and August last year. The most notable, but small, upward pressures came from data processing equipment and package holidays. In both cases, prices rose by more between July and August this year than between the same two months a year ago.

The upward effect from restaurants and hotels came from accommodation services, where prices fell by less between July and August this year than between the same two months a year ago. The movement in the cost of overnight hotel accommodation was the main contributor.

Although transport, overall, had a smaller upward contribution to the change in the headline rate, this concealed two larger, partially offsetting movements from motor fuels and air fares. Motor fuels had a large upward effect on the change in the rate between July and August, with prices rising between the two months this year compared with a fall a year ago. For example, petrol prices rose by 1.8 pence per litre this year but fell by 1.8 pence a year ago. This is a reversal from recent months, where prices have generally fallen compared with rises in the equivalent month a year ago.

Air fares rose as usual between July and August but the rise of 10.9% was smaller than the 14.4% recorded between the same two months a year ago. As a result, this category was responsible for the largest, partially offsetting, downward contribution to the change in the headline rate.

Figure 4 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 but 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: September 2017 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 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.

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