Consumer price inflation, UK: May 2016

The Consumer Prices Index (CPI) rose by 0.3% in the year to May 2016, unchanged from April.

This continues the position seen since the beginning of the year of a rate which is a little above zero. With the exception of March, when the rate was influenced by the timing of Easter, headline inflation has been 0.3% for all months of 2016.

Rises in transport costs, restaurant and hotel bills and the price of telecommunication services were the main upward contributors to change in the rate.

These upward pressures were offset by falls in the price of clothing, food and games, toys and hobbies.

CPIH (not a National Statistic) rose by 0.7% in the year to May 2016, up from 0.6% in April.

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 May 2016, so the 12-month rate measures changes in prices between May 2015 and May 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 May 2015 and May 2016 stood at 0.3%. This means that a basket of goods and services that cost £100.00 in May 2015 would have cost £100.30 in May 2016.

With the exception of March, when the rate was influenced by the timing of Easter, headline inflation has been 0.3% for all months of 2016. This follows 2015 which was a year of historically low inflation, with the rate being at or around zero for much of the year. Similar to 2015, the largest downward pulls on inflation continue to come from prices for food and non-alcoholic beverages, and transport. 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 May 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 April and May 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 0.2% between April and May 2016, compared with a rise of 0.2% between the same 2 months a year earlier. The 1-month movement was therefore the same in both years, leading to the CPI 12-month rate remaining at 0.3% for a second month.

Between April and May 2016, the main upward contributions to change in the CPI 12-month rate came from the following groups.

Transport: prices, overall, rose by 0.9% between April and May this year compared with a rise of 0.6% between the same 2 months a year ago. There were small upward effects from motor fuels, where diesel prices rose by 3.0 pence per litre this year compared with 1.5 pence a year ago, and sea fares, which rose slightly this year but fell a year ago. The overall upward contribution was partially offset by a downward effect from air fares, which rose by less than a year ago.

Restaurants and hotels: prices, overall, rose by 0.5% this year compared with 0.2% a year ago. The main upward effect came from accommodation services, where prices for hotel overnight stays rose by more than a year ago.

Communication: the upward contribution came from telephone equipment and services with prices, overall, rising by 0.9% between April and May this year compared with a fall of 0.3% between the same 2 months a year ago. The effect came principally from bundled telecommunication services and mobile phone applications.

Miscellaneous goods and services: prices, overall, rose this year but fell a year ago with the main upward contribution coming from insurance.

The main downward contributions to change in the CPI 12-month rate between April and May came from the following groups.

Clothing and footwear: prices, overall, fell by 0.2% between April and May this year but rose by 0.5% between the same 2 months a year ago. The downward contribution came from a variety of clothing but particularly children’s outerwear.

Recreation and culture: prices, overall, fell by 0.4% compared with a fall of 0.1% between the same 2 months a year ago. The downward contribution came mainly from games, toys and hobbies (particularly computer games) with prices falling between April and May 2016 compared with a rise last year. This was partially offset by an upward effect from data processing equipment, with the price of PC peripherals (such as printers and routers) falling by less than a year ago.

Food and non-alcoholic beverages: prices, overall, fell by 0.4% between April and May 2016 compared with a fall of 0.1% a year ago. The downward contribution came from a variety of food product groups, most notably vegetables and confectionery.

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 May 2016, the 12-month rate (the rate at which prices increased between May 2015 and May 2016) for CPIH stood at 0.7%, up from 0.6% in April 2016. The difference between the CPI and CPIH annual rates in May 2016 was 0.4 percentage points, up from 0.3 percentage points in April. This widening was principally due to rounding. Owner occupiers’ housing costs increased by 0.3% between April and May 2016, compared with 0.2% between these months a year earlier. This meant that 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 (RPI) 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 RPI and 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 May 2016, the 12-month rate for RPIJ stood at 0.7%, unchanged from April.

The RPI 12-month rate for May 2016 stood at 1.4%, meaning that it was 0.7 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, 0.6 percentage points lower than the RPI.

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.