Consumer price inflation, UK: October 2015

• The Consumer Prices Index (CPI) fell by 0.1% in the year to October 2015, the same fall as in the year to September 2015

• Upward price pressures for clothing and footwear and a range of recreational goods were offset by downward price pressures for university tuition fees, food, alcohol and tobacco, resulting in no change to the overall rate of inflation

• CPIH (not a National Statistic) grew by 0.2% in the year to October 2015, unchanged from September 2015

Consumer price inflation is the speed at which the prices of goods and services bought by households rise or fall. Consumer price inflation is estimated by using price indices. A way to understand a price index is to think of a very large shopping basket containing all the goods and services bought by households. The price index estimates changes to the total 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 October 2015, so the 12-month rate measures changes in prices between October 2014 and October 2015.

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 (100.5 Kb Pdf).

Latest figure and long-term trend

The CPI 12-month rate (the amount prices change over a year) between October 2014 and October 2015 stood at a negative 0.1%. This means that a basket of goods and services that cost £100.00 in October 2014 would have cost £99.90 in October 2015.

Since early 2015, the CPI 12-month rate has been very close to 0.0%. This means that, taken as a whole, households have experienced very little change in prices so far this year compared with the same months in 2014. However, the picture for individual households will depend on the goods and services that they buy. Looking across the year as a whole, prices for transport costs, food and non-alcoholic beverages and (to a lesser extent) recreational and cultural goods and services have had a negative pull on the rate of inflation. These have been counterbalanced by a positive pull from price movements for other goods and services, most notably the cost of eating and drinking out, and education costs such as tuition fees.

Figure A shows the contributions to the CPI 12-month rate in October 2015 compared with the contributions to the 12-month rate a year earlier. A larger version of the chart can be viewed by clicking on it (HTML version only).

Figure B shows the CPI 12-month rate over 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. A larger version of the chart can be viewed by clicking on it (HTML version only).

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 September and October 2015 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 (37.1 Kb Pdf) is a diagram explaining the calculation.

The CPI rose by 0.1% between September and October 2015 compared with a rise of 0.1% 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 a negative 0.1% for a second consecutive month.

While the CPI 12 month rate didn’t change, there were a number of offsetting upward and downward contributions to the rate.

The largest upward contributions to the change in the CPI 12-month rate between September and October 2015 came from:

• clothing and footwear: prices, overall, rose by 2.0% between September and October this year compared with a smaller rise of 0.6% between the same 2 months a year ago. This provided the largest contribution to change in the CPI 12-month rate in either direction. The contribution came primarily from price movements for a broad range of outerwear, where fewer products were on sale this October compared to a year ago. The 2.0% overall increase in prices is the largest September to October increase since official records began in 1996. This continues the trend seen over the summer of atypical monthly price movements in the clothing and footwear sector, with reports of retailers changing their sales strategies

• recreation and culture: prices, overall, rose by 0.8% between September and October this year compared with a smaller rise of 0.4% between the same 2 months a year ago. The upward contribution came from price movements for a range of recreational goods, most notably computer games and consoles

The largest downward contributions to the change in the CPI 12-month rate between September and October 2015 came from:

• education: prices, overall, rose by 3.6% between September and October this year compared with a larger rise of 7.9% between the same 2 months a year ago. The downward contribution came principally from UK and EU student tuition fees, where the impact from the rise in the cap for tuition fees (first introduced for new students in England in 2012) was smaller this year than in 2014. The smaller impact was because only the fees for fourth year courses rose to new higher rates this year compared with fees for third year courses rising a year ago, together with the fact that there are fewer fourth year than third year students. In addition there were more modest price increases for part-time and postgraduate fees compared with last year. A simplified example (322.3 Kb Pdf) of the procedures used in measuring university tuition fees in the CPI was published last year

• food and non-alcoholic beverages: prices, overall, fell by 0.4% between September and October this year compared with a rise of 0.1% between the same 2 months a year ago. The downward contribution came from price movements for a wide range of foodstuffs, partially offset by upward contributions from price movements for several confectionary products. The latest figures continue the trend of negative food inflation seen over the last 18 months

• alcoholic beverages and tobacco: prices, overall, fell by 0.4% between September and October this year compared with a rise of 0.6% between the same 2 months a year ago. The downward contribution came from wine, spirits and tobacco. This is the first time that prices, overall, have fallen in this sector between a September and October since 2009 and the largest fall between these 2 months since official records began in 1996

Figure C shows the contributions to change from each part of the CPI basket of goods and services. A larger version of the chart can be viewed by clicking on it (HTML version only).

CPIH is currently undergoing re-assessment to evaluate the extent to which it meets the professional standards set out in the Code of Practice for Official Statistics. CPIH was first assessed in 2013. In August 2014 its National Statistics status was removed pending work to improve the methods for measuring owner occupiers’ housing costs in the index. Full details can be found on the UK Statistics Authority website and in an explanatory note (313.9 Kb Pdf) on our website. The improvements from the resulting development work were introduced as part of the February 2015 dataset with the historical series revised back to 2005. Further information on the changes is available in 2 articles: Improvements to the measurement of Owner Occupiers’ Housing Costs (2.48 Mb Pdf) and Private Housing Rental Prices and Revising the weight of Owner Occupiers’ Housing in CPIH (197.4 Kb Pdf).

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 17.8% 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 October 2015, the 12-month rate (the rate at which prices increased between October 2014 and October 2015) for CPIH stood at 0.2%, unchanged from September 2015. The difference between the CPI and CPIH annual rates in October 2015 was 0.3 percentage points, the same as the difference in September. Owner occupiers’ housing costs increased by 0.2% between September and October 2015, the same as between these months a year earlier and did not change the overall difference between CPI and CPIH.

Figure D shows the CPIH and OOH component 12-month rates since January 2006 (the earliest date for which the official CPIH 12-month rate can be calculated). 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. A larger version of the chart can be viewed by clicking on it (HTML version only).

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 (100.5 Kb Pdf).

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 October 2015, the 12-month rate for RPIJ stood at 0.0%, down from 0.1% in the year to September 2015.

The RPI 12-month rate for October 2015 stood at 0.7%, 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, 0.5 percentage points lower than the RPI but the difference has increased to an average of 0.6 percentage points over the last 3 years. Cumulatively, inflation as measured by the RPI is 34.2% over the 10-year period, compared with 27.1% as measured by RPIJ. The use of the Carli formula has therefore added 7.1 percentage points to the change in prices over the last 10 years. A larger version of the chart can be viewed by clicking on it (HTML version only).

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 Reference Tables of the October 2015 release.

Table D outlines where data for all consumer price inflation statistics can be found.