Consumer price inflation, UK: July 2016

The reporting period for this release covers the calendar month of July 2016, therefore, the data refers to the period after the EU referendum.

The Consumer Prices Index (CPI) rose by 0.6% in the year to July 2016, compared with a 0.5% rise in the year to June.

Although the small increase in the rate between June 2016 and July 2016 takes it to the highest seen since November 2014, it is still relatively low in the historic context.

The main contributors to the increase in the rate were rising prices for motor fuels, alcoholic beverages and accommodation services, and a smaller fall in food prices than a year ago.

These upward pressures were partially offset by falls in social housing rent, and falling prices for certain games and toys.

CPIH (not a National Statistic) rose by 0.9% in the year to July 2016, up from 0.8% in June.

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 July 2016, so the 12-month rate measures changes in prices between July 2015 and July 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 July 2015 and July 2016 stood at 0.6%. This means that a basket of goods and services that cost £100.00 in July 2015 would have cost £100.60 in July 2016.

The July rate of 0.6% is a slight increase on the June figure and is the highest since November 2014. The rates for 2016 to date are relatively low but are generally above those experienced in 2015, which was a year of historically low inflation, with the rate being at or around zero for much of the year. The largest downward pull on inflation in July 2016 and for 2016 to date comes from prices for food and non-alcoholic beverages. Upward pressures come from a variety of categories, most notably restaurant and hotel bills.

Additional analysis of the Producer Price Index (PPI) and Consumer Price Index (CPI): focus on the effects of changes in the sterling exchange rate, also published today, presents further analysis of the July PPI and CPI headline statistics and previous trends with a particular focus on how movements in the sterling exchange rate may have influenced these data.

Figure A shows the contributions to the CPI 12-month rate in July 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 June and July 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 fell by 0.1% between June and July 2016, compared with a fall of 0.2% between the same 2 months a year earlier. The 1-month movement was therefore 0.1 percentage points higher this year compared with a year ago, leading to a rise in the CPI 12-month rate.

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

Transport: prices, overall, rose by 1.6% between June and July this year, compared with a rise of 1.2% between the same 2 months a year ago. Within transport, the largest upward effect came from motor fuels, with prices rising between June and July 2016, having fallen overall between the same 2 months last year. Smaller upward effects came from second-hand cars, with prices falling by less than they did a year ago and from international rail fares, which increased by more than they did last year.

Alcoholic beverages and tobacco: within this category, the upward contribution came from alcoholic beverages, for which prices rose overall by 0.5% between June and July 2016, compared with a fall of 2.5% between the same 2 months last year. This was primarily due to prices for wine, which fell by less than they did a year ago, although it is important to note that last year’s fall was particularly large.

Restaurants and hotels: prices, overall, rose by 0.4%, compared with a smaller rise of 0.1% a year ago. The main upward contribution came from accommodation services, in particular overnight hotel stays, for which prices rose by more than they did a year ago.

Food and non-alcoholic beverages: the upward contribution came from food, for which prices, overall, fell by 0.2% between June and July this year compared with a larger fall of 0.7% between the same 2 months a year ago. The main upward effects came from certain dairy items, although the price movements were not unusual in the historic context. For example, the upward effect seen for shop-bought semi-skimmed milk was partially due to a particularly large fall in prices between June and July last year. These upward contributions were partially offset by a downward effect for meat, with prices falling between June and July 2016, having risen between the same 2 months a year ago.

The main downward contributions to the change in the CPI 12-month rate between June and July 2016 came from the following groups.

Housing, water, electricity, gas and other fuels: prices, overall, were unchanged between June and July this year, having risen by 0.3% between the same 2 months a year ago. The downward effect came from housing rental, specifically Registered Social Landlord (RSL) rents, which saw a decrease between June and July 2016, having increased between the same 2 months last year. This may relate to the announcement in the Summer Budget 2015, which committed to reducing social housing rental prices by 1% per year for 4 years, starting in 2016.

Recreation and culture: prices, overall, decreased by 0.1% this year compared with an increase of 0.2% a year ago. The downward effect came primarily from games and toys, particularly computer games and consoles, which fell in price between June and July this year, having risen in the same period last year. This downward effect was partially offset by an upward contribution from audio-visual equipment and related products which, overall, fell in price by less than they did last year. Figure C shows the contributions to the 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, the basket of goods and services and the method of deriving the weights are the same as for the Consumer Prices Index (CPI), with the exception of OOH. A full description of how CPIH is compiled is given in the Consumer Price Indices Technical Manual and in various papers published on the prices guidance and methodology webpage.

In July 2016, the 12-month rate (the rate at which prices increased between July 2015 and July 2016) for CPIH stood at 0.9%, up from 0.8% in June 2016. The difference between the CPI and CPIH annual rates in July 2016 was 0.3 percentage points, the same as in June. Owner occupiers’ housing costs increased by 0.2% between June and July 2016, compared with an increase of 0.1% between these months a year earlier. This meant that they had a small positive 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. More CPIH data are available in Tables 21 to 34 of the Consumer Price Inflation dataset.

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 July 2016, the 12-month rate for RPIJ stood at 1.1%, up from 0.9% in June.

The RPI 12-month rate for July 2016 stood at 1.9%, 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, 0.6 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.

If you would like 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.

Understanding and accessing the data

A full description of how consumer price indices are compiled is given in the Consumer Price Indices Technical Manual. This is supplemented by further information available from the prices guidance and methodology webpage.

The CPI Quality and Methodology Information document 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 report was last updated in October 2013.

The mini Triennial Review of the CPI and RPI Central Collection of Prices is available.

All consumer price inflation data (including Excel dataset, time series data and explorable datasets) can be found on the dataset page.

To help you further, very detailed data are available, including the individual price quotes (for locally collected items only) and item indices that underpin the consumer price inflation statistics. The item indices behind the measurement of owner occupiers’ housing costs are included for the first time in the first quarter 2016 data. Please note, the data that are published are at a level which means that no individual retailer or service provider will be able to be identified. The data published cover January 1996 to March 2016. These data are updated once a quarter with around a 2-month lag with the latest CPI publication. For example, the data will next be updated when the August CPI is published on 13 September 2016, at which point the detailed data published will be extended to June 2016.

Internationally, the CPI is known as the Harmonised Index of Consumer Prices (HICP). HICPs are calculated in each member state of the European Union (EU) according to rules specified in a series of European regulations developed by the European Commission (Eurostat) in conjunction with the EU member states. Eurostat will release figures for the Harmonised Index of Consumer Prices (HICP) for the month of July 2016 for EU member states, together with an EU average, on 18 August 2016. A summary of the latest European data is available from Eurostat’s database tables. Further information on HICP for the EU, Euro area and other EU member states is available from Eurostat's HICP web page.

Methods ‒ CPI and other measures of inflation

The CPI, CPIH, RPIJ and RPI are compiled using the same underlying price data, based on a large and representative selection of around 700 individual goods and services for which price movements are measured in around 140 randomly selected areas throughout the UK. Around 180,000 separate price quotations are used every month to compile the indices. The outlets in which the prices are collected are selected randomly. Expenditure weights are held constant for 1 year at a time.

The selection of goods and services that are priced to compile these indices is reviewed annually. The contents of the 2016 basket are described in an article Consumer Price Inflation: The 2016 Basket of Goods and Services. The expenditure weights used to compile the indices are also updated each year. Additional details of the updated weights for 2016 are available in an article published on 22 March 2016 entitled Consumer Price Inflation: 2016 Weights.

Rates of change for the CPI and CPIH are calculated from unrounded index levels, rather than from the published indices which are rounded to 1 decimal place. The use of unrounded indices increases the accuracy of the calculation. The unrounded index levels for the CPI and CPIH are available from Tables 63 and 64 of the Consumer Price Inflation dataset. By contrast, rates of change for the RPI and RPIJ are calculated from the published rounded indices.

Further information on the methods used to construct the CPI, CPIH, RPI and RPIJ, including differences in the methods used for each index, can be found in the Consumer Price Indices Technical Manual. Users and uses of consumer price inflation statistics (2013) provides further details of how consumer price statistics are used more generally.