1. Introduction

This article explains the estimated impact of implementing measures announced in the October 2018 Budget, previous budgets and pre-budget reports on the Consumer Prices Index including owner occupiers’ housing costs (CPIH), the Consumer Prices Index (CPI) and the Retail Prices Index (RPI).

This article does not attempt to quantify the impact of changing consumer or producer behaviour, or any other secondary impact, following the implementation of these measures. Furthermore, the estimated contributions assume all announced changes are passed on immediately and in full to consumers as soon as they come into effect. In practice this is unlikely, for instance, changes to tobacco and alcohol duties generally affect the index over a period of several months as stocks deplete.

This article does not include an estimate of the impact of the levy on soft drinks with added sugar content that came into effect in April 2018. The impact of this change has been previously analysed in the Prices economic commentary: October 2018.

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2. Budget measures that will impact CPIH, CPI and RPI

Table 1 details the measures announced in the 2018 Budget that will impact on the Consumer Prices Index including owner occupiers’ housing costs (CPIH), the Consumer Prices Index (CPI) and the Retail Prices Index (RPI) 1-month rates in the financial years (April to March) ending 2019 and 2020, along with the estimated magnitude of the effect. We have not included an estimate of the impact of the Minimum Excise Tax for cigarettes because the effect on the headline inflation figures is likely to be negligible.

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3. Impact of the Budget on the CPIH, CPI and RPI 1-month rate

Table 2 presents a comparison of the impact on the Consumer Prices Index including owner occupiers’ housing costs (CPIH), the Consumer Prices Index (CPI) and the Retail Prices Index (RPI) 1-month rates of the budget measures that were implemented in the financial year ending 2019 and those known measures that will be implemented in the financial year ending 2020. There is also the possibility of further changes being announced in subsequent budgets, which will impact in the financial year ending 2020.

The known measures that will be implemented in the financial year ending 2020 are estimated to have a negligible effect on the CPIH, CPI and RPI 1-month inflation rate.

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4. Cumulative effects of the Budget on the CPIH, CPI and RPI 12-month rate

The following tables show the cumulative effects on the all items Consumer Prices Index including owner occupiers’ housing costs (CPIH), the Consumer Prices Index (CPI) and the Retail Prices Index (RPI) 12-month rates of the 2018 Budget measures that were or will be implemented in financial year ending 2019 and known measures that will be implemented in financial year ending 2020. They also show the likely timing of effects on the CPIH, CPI and RPI 12-month rates, assuming all announced changes are passed on immediately and in full to consumers as soon as they come into effect. There is also the possibility of further changes being announced in subsequent budgets, which will impact in the financial year ending 2020.

Effects on the CPIH 12-month rate

It is estimated the known budgetary measures implemented in financial year ending 2020 will have a negligible effect on the CPIH 1-month rate. This means that the CPIH 12-month rate is estimated to decrease by 0.09 percentage points because the impact of the measures implemented in financial year ending 2019 was 0.09 percentage points.

Effects on the CPI 12-month rate

It is estimated the known budgetary measures implemented in financial year ending 2020 will have a negligible effect on the CPI 1-month rate. This means that the CPI 12-month rate is estimated to decrease by 0.10 percentage points because the impact of the measures implemented in financial year ending 2019 was 0.10 percentage points.

Effects on the RPI 12-month rate

It is estimated the known budgetary measures implemented in financial year ending 2020 will have a negligible effect on the RPI 1-month rate. This means that the RPI 12-month rate is estimated to decrease by 0.09 percentage points because the impact of the measures implemented in financial year ending 2019 was 0.09 percentage points.

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5. Background notes

CPIH 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.

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.

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 Statistics and found not to meet the required standard for designation as National Statistics. The RPI continues to be used for purposes such as the indexation of pensions, rents and index-linked gilts.

This note is prepared simply as a helpful guide to users of the CPIH, CPI and RPI. Office for National Statistics accepts no liability whatsoever for losses of any kind arising as a result of reliance on this note.

The effects of the budgets shown in this note are estimates only.

Percentage point contributions to the CPIH, CPI and RPI one-month change are based on average retail prices as measured in the September 2018 indices.

No estimate has been made of any price changes resulting from other budget measures, direct or otherwise.

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Contact details for this Article

Andy King
cpi@ons.gov.uk
Telephone: Consumer Price Inflation Enquiries: +44 (0)1633 456900 Consumer Price Inflation recorded message (available after 9.45am on release day): Telephone: + 44 (0)800 0113703