1. Main points

  • The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 2.8% in September 2017, up from 2.7% in August 2017; it was last higher in March 2012.

  • The main contributors to the increase in the rate were rising prices for food and recreational goods, along with transport costs, which fell by less than they did a year ago.

  • These upward effects were partially offset by downward contributions from a range of goods and services, in particular clothing prices, which rose by less than they did a year ago.

  • The Consumer Prices Index (CPI) 12-month rate was 3.0% in September 2017, up from 2.9% in August 2017; it was last higher in March 2012.

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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) 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 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 September 2017.

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3. CPIH 12-month rate was last higher in March 2012

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month rate was 2.8% in September 2017, up from 2.7% in August 2017. This is the second consecutive month of small increases, with the rate last being higher in March 2012.

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. 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, often reported as being up to spring this year.

The inflation rate for a range of goods has, however, picked up since the start of the year and the overall rate in the UK is higher than in most other EU countries, including all of the larger western European nations. Depreciation may have influenced this but increasing global commodity prices could also be a factor.

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.

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4. Recreation and culture, and food inflation highest in recent years

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 September 2017. Their contributions have been positive in all months from March this year. The corresponding figures for the Consumer Prices Index (CPI) can be found in column E of Table 26 in the CPI dataset.

Prices in all broad categories were higher in September 2017 than a year ago. The rate of 2.6% for recreation and culture is the highest since January 2010, whilst the rate of 3.1% for food and non-alcoholic beverages is the highest since October 2013. This is reflected in the increase in these categories’ contributions to the headline rate since the beginning of 2017. The upward contribution from food and non-alcoholic beverages contrasts with the picture last year, when this category had the largest downward effect on the inflation rate.

The largest upward contribution to the 12-month rate continues to come from housing and household services, mainly from owner occupiers’ housing costs and, to a lesser extent, from electricity prices and Council Tax.

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5. Rising food prices made a large contribution to the change in the CPIH rate

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

The upward contribution to the change in the rate between August and September 2017 from food and non-alcoholic beverages came from a wide range of food products, although fruit and vegetables made a small downward contribution. Overall, food prices rose by 0.8% between August and September 2017, compared with a 0.4% fall last year.

The largest upward contribution came from transport, in particular air fares. As is usually the case in September, air fares fell sharply following the holiday period, with the fall being of a similar magnitude to last year. However, because air fares account for a smaller proportion of the basket of goods and services in 2017, the impact of the fall in price 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 an upward contribution to the change in the rate. A smaller upward effect came from fuel, with prices rising by more than they did a year ago.

Recreation and culture also had a large upward effect, with prices rising by 0.8% between August and September 2017, compared with a 0.1% rise a year earlier. Much of the upward effect came from computer games, although this reflects the fact that price movements for computer games are heavily dependent on the composition of bestseller charts, which often results in large overall price changes from month to month. Smaller upward effects came from books and theatre admissions, which are similarly affected by chart composition and the productions that are showing at the time. Prices for package holidays also had a small upward effect, with prices rising between August and September 2017, having fallen a year ago.

Although 8 of the 12 broad categories made a downward contribution to the change in the rate, the effects were relatively small and not enough to offset the upward contributions. The largest downward effect came from prices for clothing (specifically women’s clothing), with prices rising by less between August and September 2017 than they did a year ago. The increase in September last year was unusually high and followed a sustained period of price falls earlier in the year. In contrast, prices in 2017 have been consistently higher than in 2016, but with a less pronounced increase in September.

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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.

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.

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