Consumer price inflation, UK: June 2017

• The Consumer Prices Index including owner occupiers’ housing costs (CPIH, not a National Statistic) 12-month inflation rate was 2.6% in June 2017, down from 2.7% in May 2017.
• This is the first fall in the CPIH inflation rate since April 2016, although it remains higher than in recent years.
• Falling prices for motor fuels and certain recreational and cultural goods and services were the main contributors to the fall in the rate.
• These downward contributions were partially offset by rising prices for furniture and furnishings.
• The Consumer Prices Index (CPI) 12-month rate was 2.6% in June 2017, down from 2.9% in May 2017.

Alongside this release, we have published an article that sets out our future approach to measuring changing prices and costs faced by consumers and households. The article sets out three “use cases” along with how they relate to the measures that we currently publish and those that are under development. Specifically, they refer to the Consumer Prices Index including owner occupiers’ housing costs (CPIH) as a comprehensive measure of inflation based on economic principles; the Household Costs Indices (HCIs, currently under development) 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.

On 15 June 2017, the National Statistician announced that pre-release access to Office for National Statistics publications would stop with effect from 1 July 2017. This is therefore the first consumer price inflation release where ministers and other officials did not receive access to the information prior to publication.

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 13 June 2017.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month rate fell to 2.6% in June 2017 compared with 2.7% in May 2017. Although this is the first fall since April 2016, it remains higher than the rates generally seen since mid-2013.

All else being equal, the depreciation of sterling seen in 2016 and particularly following the outcome of the EU referendum would increase the prices producers pay for imported goods. For example, part of the increase in fuel prices in 2016 can be explained by sterling depreciation, because fuel prices reflect movements in global oil prices, which are priced in US dollars. Whilst depreciation is likely to increase the cost of imports, other factors determine whether these are passed on to consumers. For example, there were reports of businesses having measures to protect against exchange rate changes in the short-term.

The inflation rate for a range of goods has, however, picked up in recent months; for some it is the highest for several years. Although depreciation may have influenced this, the analysis in the Prices economic commentary: July 2017 shows similar effects in other countries, which points to increasing global commodity prices being an important factor. Conversely, recent falls in global oil prices have pushed down the cost of fuel, the main contributor to the fall in the inflation rate in June 2017.

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.

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, a trend that continued into May 2017, when CPI was 0.2 percentage points higher than CPIH. In June 2017, the gap closed so that both measures reported the same rate. This narrowing of the difference is largely due to rounding; using unrounded growth rates, the difference was 0.1 percentage points for both May and June 2017.

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 June 2017. The corresponding figures for the Consumer Prices Index (CPI) can be found in column E of Table 26 in the CPI dataset.

Although transport continues to make a large contribution to the rate, this has reduced over the last 2 months. As explained further in section 5, this is the primary reason for the fall in the CPIH 12-month rate in June 2017.

The largest upward contribution came from housing and household services, largely from owner occupiers’ housing costs and, to a lesser extent, from Council Tax and electricity prices.

Prices in all broad categories were higher in June 2017 than a year ago with three showing their highest 12-month rate since 2013 or earlier; namely food and non-alcoholic beverages, furniture and household goods, and restaurants and hotels.

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 May and June 2017. The corresponding figures for the Consumer Prices Index (CPI) can be found in column F of Table 26 in the CPI dataset.

The largest downward effect came from transport, in particular motor fuels. Fuel prices fell by 1.1% between May and June 2017, the fourth successive month of price decreases. This contrasts with the same period last year, when fuel prices rose by 2.2%. Taken together, these movements resulted in prices for motor fuels making a large downward contribution to the change in the rate.

Recreational and cultural goods and services also made a substantial downward contribution to the change in the rate with prices, overall, falling by 0.1% between May and June 2017, compared with a rise of 0.6% a year ago. This downward effect partially reverses the upward pressure seen between April and May 2017 and comes from a variety of categories, principally data processing equipment, cultural services, and games, toys and hobbies. Each of these individual contributions is relatively small.

Although food and non-alcoholic beverages, furniture and household goods, and restaurants and hotels showed their highest 12-month rate since 2013 or earlier, their upward contributions to the change in the inflation rate were small in comparison with the downward contributions highlighted previously. The largest upward contribution came from furniture and household goods, for which prices, overall, rose by 0.5% compared with a 0.3% fall a year ago. The upward effect came from prices for a variety of bedroom, kitchen and lounge furniture.

Figure 4 shows the contribution of owner occupiers’ housing costs (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. 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: July 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.

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 report 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.