Consumer price inflation, UK: October 2018

• The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 2.2% in October 2018, unchanged from September 2018.

• The large downward contributions to the change in the 12-month rate from food and non-alcoholic beverages, clothing and footwear, and some transport elements were offset by upward contributions from rising petrol, diesel and domestic gas prices.

• Other smaller upward contributions came from items in the miscellaneous goods and services, recreation and culture, and communication sectors.

• The Consumer Prices Index (CPI) 12-month rate was 2.4% in October 2018, unchanged from September 2018.

The National Statistics status of the Consumer Prices Index including owner occupiers’ housing costs (CPIH) was reinstated on 31 July 2017. A letter from the Director General for Regulation to the National Statistician detailed the actions that were taken to meet the requirements as set out in the CPIH assessment report.

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 that we currently publish and those that are under development. Specifically, they refer to the CPIH as our lead measure of inflation based on economic principles; the Household Costs Indices (HCIs, currently under development with preliminary estimates published for the first time on 19 December 2017) 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 Retail Prices Index as a measure of inflation, released on 8 March 2018, describes the issues with the RPI.

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 (2013) covers this concept in more detail.

The CPIH is the most comprehensive measure of inflation. It extends the 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.

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

The Retail Prices Index (RPI) does not 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 provide more detailed information.

The figures in this publication use data collected on or around 9 October 2018.

From September 2018, we publish the main factors contributing to the differences between the unrounded inflation rates for the CPIH and the RPI.

These differences are broken down into:

• mortgage interest payments

• other housing components excluded from the CPIH

• imputed rents (included in CPIH and excluded from RPI)

• other differences in the coverage of goods and services

• the formula effect

The final component titled “other differences including weights” is derived as a residual. These series are published as Table 5a in the Consumer price inflation dataset while the corresponding figures for the Consumer Prices Index (CPI) can be found in Table 5b.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month rate was 2.2% in October 2018, unchanged from September.

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.

Figure 2 shows that price movements for most of 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 October 2018. The exception was clothing and footwear, which had a small downward pull on the rate, with prices falling by 1.1% in the year to October 2018.

The largest upward contribution to the rate continues to come from transport, with prices rising by 5.3% in the year to October 2018. Within the transport group, the largest contribution continues to come from motor fuels.

Other large upward contributions came from housing and household services, principally from domestic utilities and owner occupiers’ housing costs and, to a lesser extent, from recreation and culture. Electricity (9.0%) and gas prices (7.6%) have risen between October 2017 and October 2018. Within recreation and culture, notable contributions continue to come from package holidays, cultural services and games, toys and hobbies.

Figure 3 shows the extent to which the different categories of goods and services have contributed to the overall CPIH 12-month rate over the last two years. Transport, and food and non-alcoholic beverages prices have been important factors in driving the changes in the rate. As the overall CPIH rate began to level off from April 2017, the contribution from food and non-alcoholic beverages continued to increase, being offset by a fall in the contribution from transport, particularly motor fuels.

From early 2018, the contributions from most of the categories began to fall back, leading to a fall in the 12-month rate. This was true of transport between January and April. However, its contribution has more than doubled between April and August, before partially falling back in September. Since September, we have observed an increase to the contribution from housing and household services following increases to utility bills.

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 rate between September and October 2018. The corresponding figures for the Consumer Prices Index (CPI) can be found in column F of Table 26 in the Consumer price inflation dataset.

The largest downward contribution to the change in the CPIH 12-month rate came from food and non-alcoholic beverages. Food prices remain little changed since the start of 2018 and fell by 0.1% between September and October 2018 compared with a rise of 0.5% between the same two months a year ago. The main effects came from yoghurts and from cheese where prices fell between September and October this year but rose a year ago. Prices for non-alcoholic beverages had a small downward effect as prices fell by more than a year ago.

Overall clothing and footwear prices fell between September and October 2018 but rose between the same two months a year ago. There were small downward contributions from menswear, footwear and other articles of clothing, partially offset by a small upward effect from children’s clothes, which rose in price between September and October 2018 but were little changed a year ago.

Transport also had a downward effect, with the purchase price of vehicles overall being unchanged this year compared with rising prices between September and October 2017. Transport services also showed larger price falls between September and October 2018 than between the same two months a year ago. There were small downward effects from new and used cars, bicycles, and from international rail and coach fares. Within transport, there was an offsetting small upward effect from motor fuels. Petrol prices rose by 0.4 pence per litre between September and October 2018 compared with a fall of 0.9 pence per litre between September and October 2017. Diesel prices rose by 1.8 pence for the same period this year compared with a 0.4 pence rise a year ago.

The largest upward contribution to the change in the 12-month rate came from housing and household services where prices for gas rose between September and October 2018 by more than a year ago. Electricity prices also rose between September and October 2018 but they had no contribution to the change in the CPIH 12-month rate, as prices rose by a similar rate a year ago.

Between September and October 2018, prices for miscellaneous goods and services overall fell by less than a year ago. The upward contributions came from surveyors’ fees, where prices were unchanged this year but some providers offered price reductions last year, and increases to initial charges for unit trust investments and to home delivery costs.

There were upward contributions from a range of recreation and culture items including cultural services, PC peripherals, DVDs, shop bought computer games and eBooks. These were partially offset by a large downward contribution from other major durables for recreation and culture where prices rose, between September and October 2018, by less than a year ago.

The final small upward contribution came from the communications sector where the price of bundled telecommunication services and telephone charges rose this year but were unchanged a year ago. This was offset by a small downward contribution from mobile phone apps where prices fell between September and October this year by more than a year ago.

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) inflation rate in the context of wider housing-related costs. Further electricity and gas price rises, between September and October 2018, have increased the contribution from utility bills to the CPIH 12-month rate. The contribution from OOH was unchanged between September and October 2018 and has fallen back from a high in October 2016.

Utility bills made a negative contribution during 2015 and 2016 but more recent rises, most notably in electricity prices, have seen its contribution turn positive through 2017 into 2018. Increases in Council Tax starting in 2016 mean that its contribution has also increased over this period.

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. 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.

Other important measures of inflation and prices include Producer price indices, the House Price Index and the Index of Private Housing Rental Prices (IPHRP). Prices economic commentary 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: 2018 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.

Consumer price inflation, updating weights: 2018 describes the latest changes to the relative weights of items in the inflation basket to ensure they remain representative of current consumer spending patterns.