Bwletin ystadegol:UK consumer price inflation: Apr 2017

• The Consumer Prices Index including owner occupiers’ housing costs (CPIH, not a National Statistic) 12-month inflation rate was 2.6% in April 2017, up from 2.3% in March.
• The rate has been steadily increasing following a period of relatively low inflation in 2015 and is at its highest since June 2013.
• Air fares were the main contributors to the increase in the rate in April 2017, although this balanced out a downward effect of similar magnitude in March 2017 and is due to Easter falling later than last year.
• Rising prices for clothing, vehicle excise duty and electricity also contributed to the increase in the rate.
• These upward contributions were partially offset by a fall in motor fuel prices between March 2017 and April 2017, compared with a rise between the same 2 months a year ago.
• The Consumer Prices Index (CPI) 12-month rate was 2.7% in April 2017, up from 2.3% in March.

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 Consumer Prices Index including owner occupiers’ housing costs (CPIH) is the most comprehensive measure of inflation. It extends the Consumer Prices Index (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 owner occupiers’ housing costs (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.

CPIH is not currently a National Statistic. It has been reassessed by the Office for Statistics Regulation (OSR) against the standards set out in the Code of Practice for Official Statistics. The assessment report published on 3 March 2016 included a number of requirements that need to be implemented for CPIH to regain its status as a National Statistic and we are working to address these.

The Consumer Prices Index (CPI) continues to be a National Statistic and is produced to international standards. It is published at the same level of detail as before in the accompanying dataset and time series dataset.

In accordance with the Statistics and Registration Service Act 2007, the Retail Prices Index (RPI) was assessed against the Code of Practice for Official Statistics and found not to 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 provides more detailed information.

The figures in this publication use data collected on or around 11 April 2017.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month rate of 2.6% for April 2017 is the highest seen since June 2013. The rate has climbed gradually following a period of very low inflation during 2015.

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.

Until recently, the rate for OOH had been considerably higher than the CPI rate, in turn meaning that the CPIH rate was higher than the CPI rate. Towards the end of 2016, the rate for OOH began to fall, whereas CPI continued to rise. This resulted in CPIH and CPI becoming more closely aligned, reporting the same rates in February 2017 and March 2017. In April 2017, the rate for OOH fell below that of CPI, resulting in CPIH being lower than CPI for the first time since June 2014.

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 April 2017. The largest upward effect in April came from transport, in particular fuel prices. Although fuel prices fell between March 2017 and April 2017, they were 11.5% higher than they were in April 2016, thereby having an upward effect on the inflation rate.

Figure 3 shows how each of the main groups of goods and services impacted on the change in the Consumer Prices Index including owner occupiers’ housing costs (CPIH)12-month rate between March 2017 and April 2017.

The upward effect for transport came mainly from air fares, with a rise of 18.6% reflecting the usual pattern of increasing prices around Easter. This counterbalanced a downward effect of similar magnitude in March 2017 and is a result of Easter falling in April this year, compared with March last year. Prices economic commentary: May 2017 presents further analysis. Changes to Vehicle Excise Duty introduced on 1 April 2017 also pushed up the rate. These upward effects were partially offset by a downward contribution from motor fuels, with prices falling for a second consecutive month. Overall, fuel prices fell by 1.5% between March 2017 and April 2017, whereas in the same period last year they rose by 3.4%.

Prices for clothing rose by 1.1% between March 2017 and April 2017 compared with a fall of 0.4% a year ago. The upward effects were spread across a wide range of items, principally in women’s clothing. Whilst this year was the largest April rise since 2011, it is important to note that the fall in April last year was unusual compared with recent years, accentuating the upward contribution from clothing to the inflation rate. Sales patterns may have contributed to the price movements, as the proportion of items on sale fell between March and April this year, having risen slightly a year ago.

The upward effect for housing and household services came mainly from electricity prices increasing by 2.5% compared with a fall of 0.2% a year ago. Price increases were partially offset by a cap placed on prepayment meter charges (known as the Prepayment Charge Restriction), which began on 1 April 2017 and will be in effect until the end of 2020. Council Tax also had an upward effect, with an increase of 3.8% being the largest since 2007. These upward effects were partially offset by owner occupiers’ housing costs (OOH), which increased by 0.1% between March 2017 and April 2017, compared with a larger increase of 0.3% a year ago. This meant that they had a downward effect on the change in the inflation rate.

Of the broad groupings, recreation and culture provided the largest downward effect on the change in the inflation rate. This was largely due to falls in prices for computer games, although it is important to note that the price movements are heavily dependent on the composition of bestseller charts. Games in the chart can vary widely in price, meaning that large changes from month-to-month are not unusual.

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 and increases in Council Tax in 2016 and 2017 mean that this is the second largest. Taken together, these two components account for almost 0.5 percentage points of the overall CPIH rate of 2.6%.

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. The negative contribution from utility bills that was seen throughout 2015 and 2016 has subsided in recent months and turned positive, whilst 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.

Other important measures of inflation and prices include Producer Prices Indices, the House Price Index and the Index of Private Housing Rental Prices (IPHRP). The Prices economic commentary: May 2017 presents further analysis of these in addition to 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 page 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 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.

An article on updating weights describes the latest changes to the relative weights of items in the inflation basket to ensure they remain representative of current consumer spending patterns.