Consumer price inflation is the speed at which the prices of goods and services bought by households rise or fall. Consumer price inflation is estimated by using price indices. One way to understand a price index is to think of a very large shopping basket containing all the goods and services bought by households. The price index estimates changes to the total cost of this basket. ONS 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 December 2013, so the 12-month rate measures changes in prices between December 2012 and December 2013.
ONS publishes a range of measures of consumer price and other price inflation. A tale of many price indices summarises information on the different measures.
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'.
The CPI 12-month rate (the amount prices change over a year) between December 2012 and December 2013 stood at 2.0%. This means that a basket of goods and services that cost £100.00 in December 2012 would have cost £102.00 in December 2013. This month the CPI is at the Government's target of 2.0%. This is the first time that the CPI has been at or below the target since November 2009, when the index stood at 1.9%.
Over the last five years, the three main contributors to the 12-month inflation rate have been food & non-alcoholic beverages, housing, water, electricity, gas & other fuels, and transport (including motor fuels). Combined, these three sectors have, on average, accounted for over half of the 12-month inflation rate each month.
Figure A below shows the CPI 12-month rate over the last 10 years. Table A below shows the CPI 1-month (the amount prices change between two consecutive months) and 12-month rates and index values for the last year. A larger version of the chart can be viewed by clicking on it (HTML version only).
|Index1 (UK, 2005 = 100)||1-month rate||12-month rate|
This section explains which goods and services had the biggest impact on the change to the 12-month rate between November and December 2013 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 two consecutive months. An alternative, and equally valid approach, is to calculate it by comparing the price change between the latest two months and the price change between the same two months a year ago. Explaining the contribution to change in the 12-month rate is a diagrammatic explanation of the calculation.
The CPI rose by 0.4% between November and December 2013, compared with a rise of 0.5% between the same two months in 2012. The 1-month movement was therefore 0.1 percentage points lower this year compared with last year. This led to the CPI 12-month rate falling from 2.1% in November to 2.0% in December.
The largest downward contributions to the change in the CPI 12-month rate between November and December 2013 came from:
food & non-alcoholic beverages: prices, overall, rose between November and December 2013 as they do between these months in most years. The rate of the rise was smaller than between the same two months in 2012 and was the smallest it has been since 2006. The downward contribution came from price movements for most foodstuffs and non-alcoholic beverages, with the largest contributions coming from price movements for fruit and meat. These downward contributions were partially offset by an upward contribution from prices for bread & cereals where the rate of price increases has accelerated. Looking over the longer term, inflation for food & non-alcoholic beverages has grown at a faster rate than overall inflation in each of the last eight years.
recreation & culture: prices, overall, fell at a quicker rate between November and December 2013 than between the same two months in 2012. The downward contribution came from across the sector, with the largest contribution coming from prices for games, toys and hobbies – notably computer games, where there were reports of sales and lower priced games on older platforms.
The largest (though relatively small compared to many months) upward contribution to the change in the CPI 12-month rate between November and December 2013 came from:
transport: prices, overall rose at a quicker rate between November and December 2013 than between the same two months in 2012. The majority of the upward contribution came from prices for petrol & diesel. Petrol prices rose by 0.5 pence per litre between November and December 2013 compared with a fall of 2.8 pence per litre between the same two months in 2012, to stand at 130.4 pence. Diesel prices rose by 0.8 pence per litre between November and December 2013 compared with a fall of 1.4 pence per litre between the same two months in 2013, to stand at 138.3 pence. The upward contribution was partially offset by air fares where prices increased between November and December 2013 as usual, but at a slower rate than in 2012.
The first tranche of the expected winter price increases for gas and electricity entered the index this month. The overall size of the price increase in December 2013 was slightly larger than a year earlier resulting in a small upward contribution to inflation.
Figure B below shows the contributions from each part of the CPI basket of goods and services. A larger version of the chart can be viewed by clicking on it (HTML version only).
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 and 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 makes the measure less suitable for a measure of consumption. OOH currently accounts for just over 12% of the expenditure weight of CPIH. This has increased gradually from a weight of 10% in 2005.
Currently, the method of calculation, the population coverage and the basket of goods and services are the same as the Consumer Prices Index (CPI), with the exception of OOH. The method of deriving the weights for CPIH and the data used for these are also the same as for CPI, with the exception of OOH. This can result in some differences from the CPI.
On 21 November 2013, the UK Statistics Authority confirmed the designation of CPIH as a National Statistic. This follows ONS implementing a number of enhancements set out by the Authority in its assessment of consumer price statistics (Statistics on Consumer Price Inflation), published on 25 July 2013. ONS has removed the experimental statistics classification from CPIH. For further information on CPIH please see Introducing the new CPIH measure of Consumer Price Inflation, 2005 to 2012.
In December 2013, the 12-month rate (the rate at which prices increased between December 2012 and December 2013) for CPIH stood at 1.9%, unchanged from November.
The difference between the CPI and CPIH annual rates in December 2013 was 0.1 percentage points, down from 0.2 percentage points in November. Owner occupiers’ housing costs rose by 0.1% between November and December 2013, and also by 0.1% between November and December 2012. The 1-month movement was therefore the same in both years and this meant that OOH had no impact on the change in the overall CPIH 12-month rate between the two months.
Figure C below shows the CPIH and OOH component 12-month rates since January 2006 (the earliest date for which the CPIH 12-month rate can be calculated). The CPI 12-month rate has been included for comparative purposes. Table B below shows the CPIH and OOH component 1-month and 12-month rates and index values for the last year. A larger version of the chart can be viewed by clicking on it (HTML version only).
|CPIH Index1 (UK, 2005 = 100)||OOH Index1 (UK, 2005 = 100)||CPIH 1-month1 rate||OOH 1-month1 rate||CPIH 12-month1 rate||OOH 12-month1 rate|
In accordance with the Statistics and Registration Service Act 2007, the Retail Prices Index 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 and rents and index-linked gilts. For further information see 'Users and uses of consumer price inflation statistics'.
RPIJ is an improved variant of the Retail Prices Index which 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 two indices. ONS does not produce detailed goods and services indices for RPIJ.
On 21 November 2013, the UK Statistics Authority confirmed the designation of RPIJ as a National Statistic. This follows ONS implementing a number of enhancements set out by the Authority in its assessment of consumer price statistics (Statistics on Consumer Price Inflation), published on 25 July 2013. ONS has removed the experimental statistics classification from RPIJ. For further information on RPIJ please see Introducing the new RPIJ measure of Consumer Price Inflation, 1997 to 2012.
In December 2013, the 12-month rate for RPIJ stood at 2.0%,unchanged from November and notably lower than the rate seen through the first three quarters of 2013. CPIH and RPIJ continue to track each other closely as they have done for the last two years.
The RPI 12-month rate for December stood at 2.7%, meaning that it was 0.7 percentage points higher than it would have been had it used formulae that meet international standards.
Figure D below 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, 0.5 percentage points lower than the RPI. Cumulatively, inflation as measured by the RPI is 38.1% over this period, compared with 31.7% as measured by the RPIJ. The use of the Carli formula has therefore added 6.4 percentage points to the change in prices over the last 10 years. A larger version of the chart can be viewed by clicking on it (HTML version only).
Table C shows the RPI and RPIJ 1-month and 12-month rates and index values for the last year.
|RPI Index 1 (UK, 1987 = 100)||RPIJ Index 1 (UK, 1987 = 100)||RPI 12-month1 rate||RPIJ 12-month1 rate||RPI 1-month1 rate||RPIJ 1-month1 rate|
The RPI has been de-designated as a National Statistic. The UK Statistics Authority now designates RPIJ as a National Statistic.
For users who want to understand the causes of the difference between the CPI and RPI, please see Table 5 in the Consumer Price Inflation Reference Tables of the December Release on the ONS website.
Table D outlines where data for all consumer price inflation statistics can be found.
|Statistical Bulletin||Detailed Briefing Note||Reference Tables (Excel Format)||Time Series Dataset|
|CPI||H, T, D||H, D||H, T, D||T, D|
|CPIH1||H, T, D||H||H, T, D||T, D|
|RPIJ1||H, T||H||H, T||T|
|RPI2||H, T||H, D||H, T, D||T, D|
|RPI Pensioner Indices2||:||:||H, T||T|
|International Comparisons||:||:||H, T||T|
These statistics are newly designated as National Statistics by the UK Statistics Authority.
These statistics are not National Statistics.
H = Latest headline figures, D = Detailed data (including disaggregations), T = Time series data.
On 14 January 2014, ONS publishes the latest edition of its Consumer Price Indices Technical Manual (note, that this link will become live at approximately 09:45 on 14 January 2014). The manual is a vital reference tool for anyone wanting to understand the methods used in calculating the suite of consumer price inflation measures. The new edition includes information on the CPIH and RPIJ measures for the first time.
ONS has published an infographic to help users understand how the various different types of housing costs are included in its different inflation measures.
Section 21 of the Statistics and Registration Service Act 2007 requires that, prior to making any change to the coverage or the basic calculation of the RPI, the UK Statistics Authority must consult the Bank of England as to whether any proposed change constitutes a fundamental change in the index which would be materially detrimental to the interests of the holders of relevant index-linked gilt edged securities. On 18 November 2013, ONS wrote to the Bank of England to inform them that there were no planned changes to the RPI proposed by the Authority for implementation in 2014 beyond two routine changes. These were the annual update to the basket of goods and services and a routine change in the method of quality adjusting digital cameras and pay as you go phones, from hedonics to class mean imputation. On 10 January 2014, the Bank confirmed that neither change constitutes a fundamental change in the index and judged that even if they had been considered a fundamental change they would still not have a materially detrimental impact on the interests of holders of index-linked gilts. A copy of the correspondence between ONS and the Bank can be found on the guidance and methodology section of the ONS website.
Understanding and accessing the data
A full description of how consumer price indices are compiled is given in the Consumer Price Indices Technical Manual (note, that this link will become live at approximately 09:45 on 14 January 2014). This is supplemented by other technical articles available from the guidance and methodology section of the ONS website.
A more detailed quality report for this statistical bulletin is available. The report assesses consumer price inflation statistics against standard dimensions of quality such as relevance, accuracy and accessibility. The report was last updated in October 2013.
mini Triennial Review (1.75 Mb Pdf)
of the CPI and RPI Central Collection of Prices is available.
Further information on consumer price inflation statistics, including details of the methodology used to construct the indices, articles, historic data etc, is available on the Consumer Price Indices Taxonomy page.
The most efficient way to access the latest consumer price inflation data and briefing on the ONS website is via the CPI key figure on the homepage.
In response to user feedback, all consumer price inflation data are available in one location. The Consumer Price Inflation Reference Tables (1.25 Mb Excel sheet) are provided via an excel file.
To further help users, very detailed CPI data are now available including the individual price quotes and item indices that underpin the CPI. Please note, that the data that are published are at a level which means that no individual retailer or service provider will be able to be identified. Previously the data published covered January 1996 to June 2013. The data for July to September 2013 are also now available. These data are updated once a quarter with around a two month lag with the latest CPI publication. For example, the data will next be updated when the February 2014 CPI is published on 25 March 2014, at which point the detailed data published will be extended to December 2013.
Internationally, the CPI is known as the Harmonised Index of Consumer Prices (HICP). HICPs are calculated in each Member State of the European Union according to rules specified in a series of European regulations developed by the European Commission (Eurostat) in conjunction with the EU Member States. Eurostat releases figures for the Harmonised Index of Consumer Prices (HICP) for the month of December 2013 for EU Member States, together with an EU average, on 16 January 2014. A summary of the latest European data is available from Eurostat’s database tables. Further information on HICP for the European Union, Eurozone 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 almost 700 individual goods and services for which price movements are measured in around 150 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 one year at a time.
The selection of goods and services that are priced to compile these indices is reviewed annually. The contents of the 2013 basket are described in an article Consumer Prices Index and Retail Prices Index: the 2013 Basket of Goods and Services (354.4 Kb Pdf) . The expenditure weights used to compile the indices are also updated each year. Additional details of the updated weights for 2013 are available from the National Statistics website in an article published on 26 April 2013 entitled Consumer Prices Index and Retail Prices Index: Updating Weights for 2013.
Rates of change for the CPI and CPIH are calculated from unrounded index levels, rather than from the published indices, which are rounded to one decimal place. The use of unrounded indices increases the accuracy of the calculation. The unrounded index levels for the CPI and CPIH are available on request. 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 (note, that this link will become live at approximately 09:45 on 14 January 2014). 'Users and uses of consumer price inflation statistics' provides further details of how consumer price statistics are used more generally.
On 15 October 2013, ONS published a revisions policy for its suite of consumer price inflation statistics. The policy re-affirms the existing practices for CPI and RPI and sets out the policies for the new CPIH and RPIJ measures.
In summary; CPI, CPIH and RPIJ are revisable in theory though revisions only occur under exceptional circumstances. The RPI is never revised once published.
This bulletin includes the December 2013 data, collected on 10 December 2013. Future publication dates for this statistical bulletin are available to January 2016 (the publication of the December 2015 inflation figures). Publication dates from February 2015 onwards are provisional.
Details of the policy governing the release of new data are available from the Media Relations Office. Also available is a list of the names of those given pre-release access to the contents of this release.
In line with the Consumer Price Inflation Pre-Release arrangements, an advanced estimate of the CPI was provided to the Governor of the Bank of England and the Chancellor of the Exchequer 3.5 working days ahead of publication. Therefore the Governor shared this information with the MPC, and officials present at the MPC meeting, on Thursday 9 January 2014.
Consumer price inflation for January 2013 to January 2014 will be published on 18 February 2014.
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Details of the policy governing the release of new data are available by visiting www.statisticsauthority.gov.uk/assessment/code-of-practice/index.html or from the Media Relations Office email: email@example.com
These National Statistics are produced to high professional standards and released according to the arrangements approved by the UK Statistics Authority.
|Richard Campbell||+44 (0)1633 651536||Prices, ONSfirstname.lastname@example.org|