Consumer price inflation, UK: August 2021

• The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 3.0% in the 12 months to August 2021, up from 2.1% in the 12 months to July.
• The increase of 0.9 percentage points is the largest increase ever recorded in the CPIH National Statistic 12-month inflation rate series, which began in January 2006; however, this is likely to be a temporary change.
• The largest upward contribution to change is a base effect, because, in part, of discounted restaurant and café prices in August 2020 resulting from the government's Eat Out to Help Out scheme and, to a lesser extent, reductions in Value Added Tax (VAT) across the same sector.
• The largest upward contribution to the August 2021 CPIH 12-month inflation rate came from transport (0.87 percentage points) with further large upward contributions from restaurants and hotels (0.65 percentage points), housing and household services (0.65 percentage points), and recreation and culture (0.28 percentage points).
• CPIH increased by 0.6% on the month in August 2021, compared with a fall of 0.3% in August 2020.
• Restaurants and hotels, recreation and culture, and food and non-alcoholic beverages made the largest upward contributions to the change in the CPIH 12-month inflation rate between July and August 2021.

• The Consumer Prices Index (CPI) rose by 3.2% in the 12 months to August 2021, up from 2.0% in July: the increase of 1.2 percentage points is the largest ever recorded increase in the CPI National Statistic 12-month inflation rate series, which began in January 1997; this is likely to be a temporary change.

• On a monthly basis, CPI increased 0.7% in August 2021, compared with a fall of 0.4% in August 2020.

• Football admissions became available in August 2021, meaning that there are no more CPIH items identified as unavailable because of lockdown restrictions.

The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 3.0% in the 12 months to August 2021, up from 2.1% to July. This is the largest ever recorded change in the CPIH 12-month inflation rate¹. Previously the largest change was recorded in December 2008, when the 12-month rate decreased 0.8 percentage points to 3.0%. Inflation rates at this time are influenced by the effects of the coronavirus (COVID-19) lockdowns in 2020. The Office for National Statistics' (ONS) blog Beware Base Effects describes how relatively low prices for some items during and after that period influence current inflation rates. In particular, in August 2020 many prices in restaurants and cafes were discounted because of the government's Eat Out to Help Out (EOHO) scheme, which offered customers half-price food and drink to eat or drink in (up to the value of £10) between Mondays and Wednesdays. Because EOHO was a short-term scheme, the upward shift in the August 2021 12-month inflation rate is likely to be temporary.

The Consumer Prices Index (CPI) rose by 3.2% in the 12 months to August 2021, up from 2.0% to July. This is also the largest ever increase in the CPI 12-month inflation rate². The large change in the level of the index is likely to be a temporary effect.

On a monthly basis, CPIH rose by 0.6% in August 2021, where price rises in transport, recreation and culture, food and non-alcoholic beverages, and restaurants and hotels contributed to the monthly rate. While there was a fall of 0.3% in the same month the previous year, the main downward contribution to last year's monthly rate came from restaurants and cafes, reflecting the impact of the EOHO scheme. However, this was the only instance of a negative 1-month inflation rate for August in the series history. The three-year average CPIH 1-month inflation rate for August 2017, 2018 and 2019 was 0.5%. More information on contributions to change is provided in section 4.

In August 2021 the CPI rose by 0.7% from the previous month, compared with a fall of 0.4% in the same month the previous year.

Given that the owner occupiers' housing costs (OOH) component accounts for around 19% of the CPIH, it is the main driver for differences between the CPIH and CPI inflation rates.

Notes for: Annual CPIH inflation rate

1. Specifically the National Statistic CPIH 12-month inflation rate series between January 2006 and August 2021

2. Specifically the National Statistic CPI 12-month inflation rate series between January 1997 and August 2021

Figure 2 shows the extent to which the different categories of goods and services have contributed to the overall Consumer Prices Index including owner occupiers' housing costs (CPIH) 12-month inflation rate over the last two years.

Transport

The contribution from transport has shown more variation than any other group over the last two years. It has ranged from a downward contribution of 0.20 percentage points in May 2020 during the first coronavirus (COVID-19) lockdown to an upward contribution of 0.87 percentage points in August 2021. This is the largest upward contribution from any division this month and the largest from transport since November 2011.

Within transport, the movements have mainly been caused by changes in the price of motor fuels. Motor fuels made a downward contribution to the 12-month rate between March 2020 and February 2021, before the contribution turned positive in March 2021 and subsequently increased to 0.41 percentage points in June 2021. It has since eased in July and August, with a contribution of 0.37 percentage points in August.

Average petrol prices stood at 134.6 pence per litre in August 2021, compared with 113.1 pence per litre a year earlier. The August 2021 price is the highest recorded since September 2013. In comparison, in August 2020, some areas of the UK saw a relaxation of movement restrictions and petrol prices were therefore recovering after a period of reduced demand.

The contribution from second-hand cars has also changed significantly since the beginning of 2020, rising from a downward effect of 0.07 percentage points in January 2020 to an upward pull of 0.15 percentage points in October. With the onset of the coronavirus pandemic, there were reports of increased demand as people sought alternatives to public transport. From October 2020, the contribution to the 12-month rate gradually fell back to 0.01 percentage points in April 2021 before rising again to 0.22 percentage points in August 2021, the largest contribution from second-hand cars since March 2010. Used car prices increased 4.9% on the month to August 2021 and have increased cumulatively by 18.4% since April 2021. By comparison, in 2020, used car prices grew 1.4% on the month to August and cumulatively by 0.3% between April and August. It should also be noted, however, that in April 2021, prices were lower than in April 2020 (Figure 3).

These latest movements come amidst reports of increased demand as dealers opened following the latest national lockdown, together with a global semiconductor shortage affecting the production of new cars and resulting in consumers turning to the used car market. Additionally, there are reportedly concerns in the trade about the supply of second-hand cars because of a variety of factors. These include fewer one-year-old cars coming to the market now because of a fall in new car registrations last year, and the extensions of lease contracts and fewer part exchanges caused again by delays in new-car supply. The latest Prices Economic Analysis compares the growth in second-hand car prices in the UK with the Euro area and United States.

There were also large upward contributions from new cars (0.06 percentage points), maintenance and repairs (0.06 percentage points), other services in respect of personal transport equipment (0.06 percentage points), and passenger transport by air (0.04 percentage points). This is the first time that air fares have materially contributed to the CPIH 12-month inflation rate as an available item since December 2020. More information on the reintroduction of air fares is provided in section 4.

Restaurants and hotels

The contribution from restaurants and hotels increased to 0.65 percentage points in August 2021. This is the largest contribution that this division has ever made to the CPIH annual rate.

This upward contribution was largely driven by widespread discounting of restaurant and café prices in the previous year. The government's Eat Out to Help Out (EOHO) scheme ran in August 2020 and offered diners a 50% discount (up to a maximum of £10 per diner) on food and non-alcoholic drinks to eat or drink in every Monday, Tuesday and Wednesday at participating establishments. At the same time, a reduction in Value Added Tax (VAT) from 20% to 5% for the hospitality sector also contributed to a fall in prices. The reduced VAT rate is still in operation and is due to be increased for the hospitality sector from 1 October 2021 to 12.5%.

In August 2020, the restaurants and hotels division made a downward contribution of 0.27 percentage points reflecting a negative divisional 12-month inflation rate of 2.8%. This was the first time that the 12-month rate had been negative in the National Statistic series since January 2006.

Supplementary analysis in our quarterly prices economic analysis suggested that the EOHO scheme's offer prices may have reduced the measured rate of CPIH inflation in August 2020 by 0.3 percentage points to 0.5%. Applying that analysis to this year's data suggests that the 12-month inflation rate for restaurants and hotels would have reduced from 8.6% to 5.2% after removing EOHO discounts. The EOHO scheme contributed 0.3 percentage points of the 0.65 percentage point contribution from restaurants and hotels in August this year. Therefore, had the EOHO scheme not taken place last year, the CPIH 12-month inflation rate for August 2021 would have been 2.7% (Figure 4). Similarly, the effect on the CPI would have been to reduce the 12-month inflation rate for August 2021 by 0.4 percentage points. Note that this analysis does not consider the effects of the VAT reduction in August 2020, since the reduced rate of VAT is still in place and the effect of the reduction was much smaller than the EOHO effect.

Housing and household services

The contribution from housing and household services rose marginally from July to 0.65 percentage points in August 2021. The main upward pressures come from owner occupiers' housing costs and rents, which contributed 0.3 percentage points and 0.1 percentage points respectively. There was a negligible change from other housing and household services components, whose contributions remain significantly above those from April 2020 to March 2021. Reductions to household utility prices in April 2020 saw the group's contribution to the CPIH headline rate fall to 0.16 percentage points but this fall was reversed in April 2021 with rises in gas and electricity prices.

Recreation and culture

During the period from April 2020 to January 2021, the largest contribution to the 12-month rate came from recreation and culture, reaching 0.35 percentage points in August 2020 then again in December 2020 and January 2021. This has since eased back somewhat and currently contributes 0.28 percentage points to the CPIH annual rate. Contributions from this category are subject to short-term fluctuations as a result of price movements for items such as computer games and, historically, they have also been influenced by the imputation of price indices for some items that have been unavailable because of the coronavirus pandemic; examples include package holidays and various recreational and cultural services.

Figure 4 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 inflation rate between July and August 2021. The corresponding figures for the Consumer Prices Index (CPI) can be found in Column F of Table 26 in the Consumer price inflation dataset.

There were upward contributions to the change in the CPIH 12-month inflation rate from 9 of the 12 divisions. There were small partially offsetting downward contributions to change in two divisions, of 0.01 percentage points each.

Restaurants and hotels

The largest contribution to the change in the CPIH 12-month inflation rate comes from restaurants and hotels which increased the August 2021 12-month rate by 0.55 percentage points relative to July 2021. This effect is predominantly caused by large price falls a year ago in August 2020 compared with a modest rise in prices in 2021. These price falls were seen in the catering services group and were largely driven by discounting under the Eat Out to Help Out (EOHO) scheme.

Last year, catering services prices fell by 5.7% on the month to August, compared with a rise of 0.3% in the same month a year earlier. This translated to a downward contribution to the change in last August's CPIH 12-month inflation rate of 0.49 percentage points. Overall, in August 2020, the all-items CPIH 12-month inflation rate fell 0.6 percentage points to 0.5%.

Analysis suggests that removing EOHO discounts would have slowed the fall in last August's 1-month growth rate for catering services to 2.0%. In August 2021, catering services would therefore have contributed 0.18 percentage points to the change in the overall CPIH 12-month inflation rate, 0.3 percentage points less than the official contribution to change from catering services, which is affected by discounted EOHO prices. As in section 3, this analysis does not include the reduction in Value Added Tax (VAT), which also came into effect in August 2020.

The remainder of the contribution to change from restaurants and hotels came from accommodation services, which increased the 12-month rate by 0.07 percentage points. This is mainly because of prices for hotels and similar accommodation services, which rose faster in August 2021 than they did in the same month a year ago.

Recreation and culture

Recreation and culture contributed 0.2 percentage points to the change in the CPIH 12-month inflation rate. Of this contribution, 0.12 percentage points came from games, toys and hobbies. This was largely driven by computer game prices which, with the exception of downloads, fell between July and August 2020, but increased between the same two months in 2021. Prices for these products could have been influenced by the coronavirus restrictions changing the timing of demand, though it is equally likely to be the result of the CDs and games in the bestseller charts used when collecting price quotes.

Food and non-alcoholic beverages

Food and non-alcoholic beverages also made a large contribution to the change in the CPIH annual rate, increasing it by 0.09 percentage points to August 2021. This was mainly because of an accumulation of small predominantly upward contributions to change across the food basket. Across the division as a whole, prices increased by more between July and August 2021 than they did between the same two months a year ago. However, at a lower level, the most notable upward contributions to change occurred because prices fell last year, compared with either a smaller fall in price this year or a small price rise. The most notable upward movements were in bread and cereals (0.03 percentage points), oils and fats (0.02 percentage points), and coffee, tea and cocoa (0.02 percentage points).

There are anecdotal reports that shortages of supply chain staff and increased shipping costs, coupled with demand increases following the lifting of national lockdowns are driving food price inflation. The average effect across food and non-alcoholic beverages points to an increase of 1.1% on the month to August 2021, the highest rate of monthly growth in August for this division since August 2008 when food and non-alcoholic beverages prices increased by 1.3%. However, it should also be noted that the lower level story for different classes is more complex.

Unavailable items

For items that were unavailable in line with government guidelines in the early part of 2021, there were no January base prices. As these items become available again, base prices have been imputed in line with the procedures described in Coronavirus (COVID-19) and Consumer Price Inflation weights and prices: 2021.

For the first month in which they become available again, item indices are imputed using either the monthly movement in the all-available-items index or, for a smaller number of seasonal items, the annual movement in the all-available-items index. The aim is that the indices for returning items have a negligible impact on the all-items inflation rate in the first month of return, reflecting the fact that these services are available only as price levels and do not have price growth associated with them (relative to the January base). Collected prices then start to influence the index in the following month.

This includes air fares, which became available last month in July 2021 and which have therefore affected the calculation of the index from August 2021. Base prices were imputed using the 12-month all-available-items inflation rate as described in the previously linked article. This includes all routes regardless of whether they are on the government's red, amber or green travel lists and regardless of the restrictions imposed by individual countries. This is because availability is defined at the item level, and also because collection lead times mean that routes were priced independently of the travel lists in the consumption period. More information on our air fares methodology is provided in section 9.5.5 of the Consumer Price Indices Technical Manual, 2019. Users should note that this approach does differ slightly from that taken in August 2020, reflecting differences in travel restrictions and the legality of travelling abroad.

Restrictions began easing from 12 April 2021 and, as of August 2021, there are no further items across the CPIH basket of goods and services that are unavailable to consumers. The changes to the list from previous months are shown in Table 58 in the Consumer price inflation dataset. The final item to become available was football admission prices. This made a negligible contribution to the change in the CPIH 12-month inflation rate between July and August 2021.

In addition to the one item returning to the CPIH basket in August, we identified two other items where, although available in theory, price collection had proved largely impossible, so we imputed the price movement.

Figure 5 shows the contribution of owner occupiers' housing costs (OOH) and Council Tax to the Consumer Prices Index including owner occupiers' housing costs (CPIH) 12-month inflation rate in the context of wider housing-related costs. In August 2021, the contribution of housing components to the CPIH 12-month inflation rate was 0.65 percentage points, little changed from July 2021.

All of the contribution to change in this division came from owner occupiers' housing costs, where the contribution increased from 0.28 percentage points in July 2021 to 0.30 percentage points in August. All of the other housing components showed a negligible change in contribution. This follows larger changes to gas and electricity prices in April when the Office of Gas and Electricity Markets' (Ofgem's) price cap, introduced on 1 April 2021, saw prices of these utilities rise by over 9%. The cost of water supply and sewerage collection also rose by 2.5% and 1.0% respectively between March and April 2021. These price rises in total resulted in all groups within the housing and household services division having a positive contribution to the CPIH 12-month inflation rate from April 2021.

Consumer price inflation

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. Consumer price indices, a brief guide gives an overview of the indices and their uses.

12-month inflation rate

The most common approach to measuring inflation is the 12-month or annual 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.

Consumer Prices Index including owner occupiers' housing costs (CPIH)

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 are significant expenses for many households and are not included in the CPI.

Consumer Prices Index (CPI)

The CPI is a measure of consumer price inflation produced to international standards and in line with European regulations. The CPI is the inflation measure used in the government's target for inflation.

The CPI is produced at the same level of detail as the CPIH in the accompanying dataset and data time series.

Retail Prices Index (RPI)

The Retail Prices Index (RPI) does not meet the required standard for designation as a National Statistic. In recognition that it continues to be widely used in contracts, we continue to publish the RPI, its subcomponents and RPI excluding mortgage interest payments (RPIX). To view the all-items RPI and 12-month inflation rate, please see the data time series section of the inflation and price indices area of our website.

The UK Statistics Authority and HM Treasury launched a consultation in 2020 on the Authority's proposal to address the shortcomings of the RPI. From 2030 (at the earliest), as outlined in the response to the consultation, the CPIH methods and data sources will be introduced into the RPI, and the supplementary and lower-level indices of the RPI will be discontinued.

Coronavirus

Since the start of the coronavirus (COVID-19) pandemic, there have been challenges around our collection activities, as approximately 80% of the price quotes (45% by weight) for the Consumer Prices Index including owner occupiers' housing costs (CPIH) basket are usually physically collected in stores across 141 locations in the UK. In April 2021, for example, we were unable to collect prices in store. However, we resumed in-store collections from May 2021 following the approach detailed in Consumer price statistics: resuming a field-based price collection. For August 2021, our price collectors were able to complete full collections in 88 of the locations with partial collections in the other 53, supplementing the latter by continuing to collect prices over the internet, by phone and by email.

The approach for resuming in-store collections was consistent with Eurostat advice, published in their Guidance note on Harmonised Index of Consumer Prices (HICP) issues emerging from the lifting of lockdown measures (PDF, 388KB).

Coronavirus and the effects on UK prices describes the approach taken for imputing price movements for items that are unavailable for consumers to purchase.

Coronavirus supplementary analysis

In March 2021, we published Effect of reweighting the consumer prices basket during the coronavirus (COVID-19) pandemic: October to December 2020, which contains Experimental statistics for both CPIH and the Consumer Prices Index (CPI). By linking the price changes between the latest month and the previous one on to the old series - a process called "chain-linking" - we are able to change our expenditure weights each month to remove any unavailable items and adjust the weight of remaining items according to our best available evidence of consumption patterns.

Methodology information

The consumer price indices are normally based on prices collected from outlets around the country, supplemented by information collected centrally over the internet and by phone. As a result of the coronavirus pandemic, we collected all prices centrally in April 2021, but our price collectors have resumed in-store collections from May 2021.

The figures in this publication use data collected on or around 10 August 2021.

Consumer price indices, a brief guide gives an overview of consumer price statistics, while the Consumer Prices 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 CPIH, focusing on the approach to measuring owner occupiers' housing costs (OOH).

Users and uses of consumer price inflation statistics includes information on the users and uses of these statistics, and the characteristics of the different measures of inflation in relation to potential use.

We have illustrated our future approach to measuring changing prices and costs faced by consumers and households using three "use cases", along with how they relate to the measures currently published and those under development. We have also published proposed updates in Measuring changing prices and costs for consumers and households, proposed updates: March 2020.

The three cases refer to the Consumer Prices Index including owner occupiers' housing costs (CPIH) as our lead measure of inflation based on economic principles, the Household Costs Indices (HCIs) as a set of measures to reflect the change in costs as experienced by households, and the Retail Prices Index (RPI) as a legacy measure that is required to meet existing user needs. Shortcomings of the RPI as a measure of inflation describes the issues with the RPI.