Consumer price inflation, UK: March 2016

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

The rate has increased gradually since October 2015 although is still relatively low in the historical context.

Rises in air fares and clothing prices were the main contributors to the increase in the rate between February and March 2016.

These upward pressures were partially offset by a fall in food prices and a smaller rise in petrol prices than a year ago.

CPIH (not a National Statistic) grew by 0.7% in the year to March 2016, up from 0.6% in February.

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. An infographic 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 March 2016, so the 12-month rate measures changes in prices between March 2015 and March 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 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 March 2015 and March 2016 stood at 0.5%. This means that a basket of goods and services that cost £100.00 in March 2015 would have cost £100.50 in March 2016.

The rate has risen gradually since October 2015 although it remains relatively low in the historical context: the CPI 12-month rate had never been below 0.5% from its introduction in 1997 to the end of 2014. Similar to 2015, the downward pull on inflation continues to come from prices for food and non-alcoholic beverages, transport, and recreational and cultural goods and services. The downward pull from transport has reduced this month however. These downward pressures have been counterbalanced by an upward pull from price movements for other goods and services, most notably restaurant and hotel bills, and education costs such as university tuition fees.

Figure A shows the contributions to the CPI 12-month rate in March 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 February and March 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. Explaining the contribution to change in the 12-month rate (2013) is a diagram explaining the calculation.

The CPI rose by 0.4% between February and March 2016, compared with a rise of 0.2% 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 February and March 2016, the main upward contributions to the change in the CPI 12-month rate came from the following groups.

Transport: prices, overall, rose by 1.7% between February and March this year compared with a rise of 0.7% between the same 2 months a year ago. By far the largest upward effect came from air transport where the timing of Easter contributed to fares rising by 22.9% between February and March 2016. Fares rose by 2.7% between the same 2 months in 2015. There was also a smaller upward effect from rail passenger transport with fares rising this year but falling a year ago. These upward effects were partially offset by a downward contribution from motor fuels with petrol prices rising by 0.9 pence per litre this year compared with a larger rise of 3.8 pence per litre a year ago.

Clothing and footwear: prices, overall, rose by 1.0% between February and March this year compared with a fall of 0.1% between the same 2 months a year ago. Last year was the first time that prices had fallen between February and March since the CPI started in 1996. Normally they rise as they continue to recover following the January sales period. The upward contribution this year came from price movements across a range of women’s outerwear.

Restaurants and hotels: prices, overall, rose by 0.5% between February and March 2016 compared with a rise of 0.2% between the same 2 months a year ago. The upward effect came principally from restaurant and café prices rising by more than a year ago.

The main downward contribution to the change in the CPI 12-month rate between February and March 2016 came from food and non-alcoholic beverages where prices, overall, fell by 0.6% between February and March this year compared with a fall of 0.2% between the same 2 months a year ago. The overall downward contribution came from a variety of product groups, most notably vegetables.

Figure C shows the contributions to 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 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 and the basket of goods and services are the same as the Consumer Prices Index (CPI), with the exception of OOH. The method of deriving the weights for CPIH and the data used for these are also the same as for CPI, with the exception of OOH. This can result in some differences from the CPI.

In March 2016, the 12-month rate (the rate at which prices increased between March 2015 and March 2016) for CPIH stood at 0.7%, up from 0.6% in February 2016. The difference between the CPI and CPIH annual rates in March 2016 was 0.2 percentage points, down from 0.3 percentage points in February. The smaller rise in the CPIH 12-month rate compared with the CPI 12-month rate was principally due to rounding plus a smaller upward contribution from air fares, resulting from the lower weight of this group in CPIH.

Owner occupiers’ housing costs increased by 0.2% between February and March 2016, compared with 0.1% between these months a year earlier. This meant they had a small upward 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.

In accordance with the Statistics and Registration Service Act 2007, the Retail Prices Index 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 Retail Prices Index, which 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, etc 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 March 2016, the 12-month rate for RPIJ stood at 0.8%, up from 0.6% in the year to February.

The RPI 12-month rate for March 2016 stood at 1.6%, meaning that it was 0.8 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, 0.5 percentage points lower than the RPI but the difference has increased to an average of 0.6 percentage points over the last 3 years.

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

For users who want 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.