Consumer price inflation, UK: May 2017

• The Consumer Prices Index including owner occupiers’ housing costs (CPIH, not a National Statistic) 12-month inflation rate was 2.7% in May 2017, up from 2.6% in April.
• The rate has been steadily increasing following a period of relatively low inflation in 2015 and is at its highest since April 2012.
• Rising prices for recreational and cultural goods and services (particularly games, toys and hobbies) was the main contributor to the increase in the rate.
• There were smaller upward contributions from increased electricity and food prices.
• These upward contributions were partially offset by falls in motor fuel prices, and air and sea fares, the latter two influenced by the timing of Easter in April this year.
• The Consumer Prices Index (CPI) 12-month rate was 2.9% in May 2017, up from 2.7% 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. 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 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 provide more detailed information.

The figures in this publication use data collected on or around 16 May 2017.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month rate of 2.7% for May 2017 is the highest since April 2012. 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.

From late 2014 until the start of this year, 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 converging to report the same rates in February 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. This trend has continued into May with the gap between CPIH and CPI widening slightly as the CPI 12-month rate has risen by slightly more between the latest two months than the CPIH rate.

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 May 2017. The largest upward contribution came from housing and household services, largely from rises in owner occupiers’ housing costs and, to a lesser extent, from Council Tax and electricity price rises. Electricity prices rose by 7.7% in the year to May following a series of increases from different companies in recent months.

The transport grouping showed the largest change in its contribution to the 12-month rate between May 2016 and May 2017. In May 2016, transport prices were down by 1.0% on a year earlier leading to a downward pull of 0.12 percentage points on the CPIH 12-month rate. In May 2017, prices rose by 4.5% on a year earlier leading to an upward contribution of 0.55 percentage points to the CPIH 12-month rate.

Prices in all broad categories were higher in May 2017 than a year ago with four showing their highest 12-month rate since 2013 or earlier, namely food and non-alcoholic beverages, clothing and footwear, furniture and household goods, and recreation and culture.

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 April and May 2017.

The largest upward effect came from a variety of recreational and cultural goods and services with prices rising, overall, by 0.9% between April and May 2017 compared with a fall of 0.4% a year ago. Within this category the major contribution came from games, toys and hobbies, particularly computer games. Price movements for these games are dependent on the composition of bestseller charts and can fluctuate from month to month. For example, the overall price rise between April and May follows a fall between March and April. Other upward pressures within recreation and culture came from increased prices for data processing equipment and package holidays.

Food prices rose slightly between April and May this year compared with a fall a year ago. The latest rise continues the upward movement observed from late 2016 and comes from a variety of product groups, particularly sugar, jam, syrups, chocolate and confectionery where prices of cartons and boxes of chocolates rose between April and May this year.

Prices for clothing rose by 0.6% between April and May this year compared with a fall of 0.3% a year ago. The upward effect came principally from children’s clothing. Sales patterns may have contributed to the price movements, as the proportion of items on sale fell between April and May this year, having risen a year ago.

Prices for furniture and household goods rose by 1.2% between April and May this year, the largest rise between these two months since 2008. Between the same two months in 2016, prices rose by 0.4%. The main upward contributions came from lounge furniture and household textiles.

There was also a significant upward effect from electricity as further price increases entered the index in May. This is a part of the broader housing and household services heading within which the effect is partially offset by a downward contribution from owner occupiers’ housing costs.

By far the largest downward contribution this month came from the transport group. This came from motor fuels and transport services, particularly air and sea fares. Petrol and diesel prices each fell this year, by 1.0 and 1.6 pence per litre respectively. This is the third successive month of price falls. A year ago, their prices rose by 2.8 and 3.0 pence per litre respectively. The timing of Easter has had a significant effect on movements in air and sea fares. These fell by 6.4% and 10.8% respectively between April and May this year, down from April prices which were influenced by Easter falling in that month. In 2016, when Easter fell in March, air and sea fares rose between April and May by 3.8% and 0.1% respectively. Prices economic commentary: May 2017 presents further analysis.

Figure 4 shows the contribution of 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 in May 2017. 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.

Other important measures of inflation and prices include Producer Prices Indices, the House Price Index and the Index of Private Housing Rental Prices (IPHRP). Prices economic commentary: June 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. Please note that the item indices files for 2005 to date and the price quotes files for 2010 to date have been updated to reflect the changes made to historic CPIH series in March this year, principally from revised weights.

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 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.

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.