Consumer price inflation, UK: March 2017

• The Consumer Prices Index including owner occupiers’ housing costs (CPIH, not a National Statistic) 12-month inflation rate was 2.3% in March 2017, unchanged from February.
• The rate has been steadily increasing following a period of relatively low inflation in 2015.
• Rising prices for food, alcohol and tobacco, clothing and footwear, miscellaneous goods and services were the main upward contributors to change in the rate.
• These were largely offset by a downward contribution from transport, particularly air fares and, to a lesser extent, motor fuels.
• The Consumer Prices Index (CPI) 12-month rate was also 2.3% in March 2017, unchanged from February.

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 owner occupiers’ housing costs (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.

The Retail Prices Index (RPI), its sub-components and RPIX continue to be published in the accompanying dataset and time series dataset. In accordance with the Statistics and Registration Service Act 2007, they 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 figures in this publication use data collected on or around 14 March 2017.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month rate of 2.3% for March is unchanged from February. These rates are the highest since September 2013. At that time the rate was gradually decreasing down to a period of low inflation observed during 2015, with the CPIH 12-month rate remaining just above zero for much of the year. Towards the end of 2015, the rate began to climb steadily to reach 2.3% in February and March 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.

Whilst CPIH and CPI show similar trends over time and both stood at 2.3% in both February and March 2017, they usually report different rates. Over the last two years, the 12-month rate for CPIH has been on average 0.3 percentage points higher than for CPI. This is because the rate for OOH has been higher than the CPI during this period, continuing to climb as the CPI rate fell to around zero in early 2015. More recently, the inflation rate for goods and services other than OOH has risen, whereas the rate for OOH has remained largely flat. This has meant that the two indices have become more closely aligned.

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 March 2017. This is the first time since June 2014 that all categories made a positive contribution. The largest upward effect in March came from housing and household services, largely from rises in owner occupiers’ housing costs. This was followed by the contribution from rising transport prices, which is largely due to increasing fuel prices.

In February, food prices rose by 0.3% on the year, the first positive rate since mid-2014. In March, the recent trend of rising food prices continued and the 12-month rate rose to 1.7%. This equates to a 0.12 percentage points upward contribution to the CPIH 12-month rate or 0.10 percentage points upward contribution from the wider food and non-alcoholic beverages category.

Figure 3 shows how each of the main groups of goods and services impacted on the change in the 12-month rate between February and March 2017. Many groups had an upward effect on the rate but these were offset by falling transport costs.

The largest upward effect came from food and non-alcoholic beverages. Food prices fell between February and March in the previous 6 years but in 2017 they rose by 0.6%. The upward effect came from a wide range of food items with only fruit providing a small downward contribution. At a detailed product level, the largest upward effects came from margarine, low-fat spread and crisps with prices for these items rising between February and March 2017 but falling between the same two months a year earlier.

The upward effect from alcohol and tobacco came reasonably equally from both components. Within alcohol, prices of spirits (particularly whisky) and beer (principally lager) rose this year but fell a year ago. With tobacco, cigarette prices rose by more between February and March 2017 than between the same two months in 2016. The movements may have been influenced by the timing of price collection in relation to the introduction of duty changes. This year prices were collected in the week after increases in duty on tobacco were introduced whereas in March 2016 price collection was mostly completed before duty increases took effect. As a result they would have had less influence on last year’s March index.

Prices of clothing and footwear rose overall by 2.0% between February and March this year compared with 1.0% a year ago. The effects are spread across a wide range of items, principally in women’s clothing.

The final significant upward effect came from the miscellaneous goods and services category. This saw an overall price rise of 0.6% between February and March 2017, the largest price rise between February and March for this category in Consumer Prices Index including owner occupiers’ housing costs (CPIH) history (which began in 2005). The largest individual effect came from jewellery, clocks and watches though there were small upward contributions from a variety of groups.

These upward effects were largely offset by a downward contribution from transport, coming principally from air fares and, to a lesser extent, movements in fuel prices. The timing of Easter in March 2016 contributed to air fares rising by 22.9% on the month whereas this year, Easter is in April and there was no price rise. Instead fares fell by 3.9% between February and March. Prices of motor fuels also fell between February and March this year reflecting falls in global oil prices whereas prices rose a year ago. Petrol fell by 1.0 pence per litre this year but rose by 0.9 pence per litre a year ago. Similarly diesel fell by 1.1 pence per litre this year but rose by 2.0 pence a year ago.

Owner occupiers’ housing costs increased by 0.1% between February and March 2017, compared with 0.2% between these months a year ago. This meant that they had a small downward effect on the change in the 12-month rate.

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 from 2015 and increases in Council Tax in 2016 mean that this is now the second largest. Taken together, these two components account for almost 0.5 percentage points of the overall CPIH rate of 2.3%.

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. The negative contribution from utility bills that was seen throughout 2015 and 2016 has subsided in recent months and turned positive, whilst 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 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: April 2017 presents further analysis of these in addition to 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 European Union. The UK HICP is identical to the UK 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 CPIH, with a focus on the approach to measuring owner occupiers’ housing costs.

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.