1. Main points

  • The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 2.7% in December 2017, down from 2.8% in November 2017.

  • Following a steady increase from late 2015, since April 2017 the CPIH rate has levelled off, ranging between 2.6% and 2.8%.

  • The downward effect came mainly from air fares, along with a fall in the prices of a range of recreational goods, particularly games and toys.

  • The downward contributions were partially offset by an increase in tobacco prices, reflecting duty increases that came into effect following the Autumn Budget, along with an increase in petrol and diesel prices.

  • The Consumer Prices Index (CPI) 12-month rate was 3.0% in December 2017, down from 3.1% in November 2017.

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2. Things you need to know about this release

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) 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.

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 dataset.

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 dataset provide more detailed information.

The figures in this publication use data collected on or around 12 December 2017.

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3. CPIH 12-month rate fell slightly in December 2017

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month rate was 2.7% in December 2017, down from 2.8% in November 2017. Following a steady increase from late 2015, since April 2017 the CPIH rate has levelled off, ranging between 2.6% and 2.8%.

Figure 1 compares the 12-month inflation rates for CPIH and 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.

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4. Continued upward effect on the CPIH inflation rate from all categories of goods and services

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 December 2017, as has been the case since March 2017.

The largest upward contribution to the CPIH 12-month rate continues to come from housing and household services, albeit less than was observed during the spring and summer months of 2017.

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. In particular, transport, and food and non-alcoholic drink 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 and in particular motor fuels. Following an increasing trend since late 2016, the contribution from food and non-alcoholic beverages has changed little since October 2017.

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5. Air fares made the largest downward contribution to change in the CPIH rate between November and December 2017

Figure 4 shows how each of the main groups of goods and services contributed to change in the Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month rate between November and December 2017. 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 came from transport, particularly air fares and to a lesser extent coach and rail fares. As is usually the case in December, air fares rose sharply, with the increase being of a similar magnitude to the previous year. However, because air fares account for a smaller proportion of the basket of goods and services in 2017, the impact of the rise in prices on the contribution of air fares to the headline rate was smaller in 2017 than in 2016. This in turn resulted in air fares making a downward contribution to the change in the rate. These downward contributions were partially offset by prices for motor fuel, which increased between November and December 2017, having fallen a year ago.

Recreation and culture also had a downward effect, with prices, overall, falling between November and December 2017 having been unchanged in the same period a year ago. This fall follows three successive months of relatively large increases in prices when compared with previous years. The largest effects came from prices for games and toys, which fell between November and December 2017 by more than they did a year ago, along with audio-visual products, for which prices fell between November and December 2017, having risen in the same period last year.

The downward contribution for housing and household services came mainly from owner occupiers’ housing costs (OOH), with prices increasing by less between November and December 2017 than they did a year ago. OOH costs have changed little since September 2017, following an increasing trend seen since mid-2010.

The downward contributions were partially offset by an upward effect from tobacco, with prices increasing by more this year than they did a year ago. This reflects duty increases announced in the Autumn Budget.

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8. Quality and methodology

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.

Consumer price inflation, 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.

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