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Latest UK inflation data – September 2017

Inflation increased in August with CPI rising to 3% (2.9%) and RPI steady at 3.9%. CPI’s increase takes it back to a level last seen over 5 years ago. In contrast to these measures, ONS’s now preferred measure of CPIH continues to lag behind at 2.8%, as predicted it would do – see here.

The ONS analysis of the changes said:

  • 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 full September ONS inflation report can be found here.

Latest UK inflation data – August 2017

Inflation increased in August with CPI rising to 2.9% (2.7%) and RPI to 3.9% (3.6%). RPI’s increase takes it back to a level last seen over 5 years ago.

In contrast to these measures, ONS’s now preferred measure of CPIH increased only slightly to 2.7%. The ONS analysis of the changes said:

  • Rising prices for clothing and motor fuels were the main contributors to the increase in the rate between July and August 2017.
  • Air fares also rose between July and August but the rise was smaller than between the same two months a year ago and so resulted in a partially offsetting, downward contribution.

The full August ONS inflation report can be found here.

Latest UK inflation data – July 2017

Inflation was fairly stable in July with CPI declining to 2.6% (2.6%) and RPI to 3.6% (3.5%).

CPIH also stayed the same at 2.6%. The ONS analysis of the changes said:

  • The price of motor fuel continued to fall and provided the largest downward contribution to change in the rate between June 2017 and July 2017.
  • This was offset by smaller upward contributions from a range of goods and services, including clothing, household goods, gas and electricity, and food and non-alcoholic beverages.

NOTE: ONS managed to get CPIH recognised as a National Statistic again. See here for our evaluation of it and why it is not a good measure of inflation.

The full July ONS inflation report can be found here.

Latest UK inflation data – June 2017

Inflation decreased in June with CPI declining to 2.6% (2.9%) and RPI to 3.5% (3.7%) i.e. almost back to April’s levels.

CPIH declined by just 0.1% to 2.6%. The ONS analysis of the changes said:

  • This is the first fall in the CPIH inflation rate since April 2016, although it remains higher than in recent years.
  • Falling prices for motor fuels and certain recreational and cultural goods and services were the main contributors to the fall in the rate.
  • These downward contributions were partially offset by rising prices for furniture and furnishings.

The full ONS report can be found here.

Latest UK inflation data – May 2017

Inflation increased in May again with CPI rising to 2.9% (2.7%) and RPI to 3.7% (3.5%).

CPIH rose by just 0.1% to 2.7%. The ONS analysis of the changes said:

  • The rate has been steadily increasing following a period of relatively low inflation in 2015 and is at its highest since April 2012.
  • Rising prices for recreational and cultural goods and services (particularly games, toys and hobbies) was the main contributor to the increase in the rate.
  • There were smaller upward contributions from increased electricity and food prices.
  • These upward contributions were partially offset by falls in motor fuel prices, and air and sea fares, the latter two influenced by the timing of Easter in April this year.

The full ONS report can be found here.

Latest UK inflation data – April 2017

Inflation increased sharply today by nearly half a percentage point. CPI rose to 2.7% and RPI to 3.5%.

As mentioned last month, predicting this month’s inflation numbers were going to be difficult. Although a number of price rises such as council tax, electricity and vehicle excise duty were likely to add to the inflation rate, the increases in petrol prices last year were also going to fall out of the calculation and so temper this.  However the official CPI measure rose more than most expected due to the two elements that ONS struggle to reliably measure i.e. clothing and airfares. Due to the later timing of Easter this year, both showed apparent marked rises in April 2017. Last year both numbers declined in the post Easter period then and so the overall effect is a sharp boost in apparent inflation this month.  The rises in both these elements will very likely reverse out next month and bring the headline rates back down. In addition, petrol prices have continued to decline since April (down 3p/litre), so it would not be surprising to see CPI back to around 2.5% in May.

The above said, it should be noted that core inflation has moved up sharply this month to 2.4% – its highest level for over four years. It is relatively unusual to see it that high and is probably a reflection of higher factory gate prices (3.6%) resulting from producer input prices (16.6%). However both these measures may well temper if sterling continues its recovery post the election.

ONS continue to promote their new CPIH measure (see here for more info). As predicted, it is now beginning to headline a lower inflation rate than even CPI shows – and many argue that CPI under-represents inflation vs RPI anyway (see here).  CPIH is lower because the Owner Occupier Housing (OOH) element it includes is just 2.2% and declining. This therefore drags down CPIH versus CPI which does not include it. On the positive side, the BBC appear to be still promoting the higher CPI measure and ignoring CPIH in their bulletins. This makes sense on many grounds – not least that the UK Statistics Authority have yet to recognise CPIH as a valid National Statistic.

The full ONS analysis can be found here.

Latest UK inflation data – March 2017

Inflation appeared largely unchanged today with CPIH (and CPI) remaining at 2.3% and RPI declining slightly to 3.1%.

There were two main reasons why inflation did not continue increasing. The first is the early timing of Easter in 2016, which has impacted some of the year-on-year comparisons. In particular, air fares were significantly higher in 2016 than in 2017 due to this factor and it also affected some other services. Secondly, the temporary drop in crude oil prices in February fed through to lower petrol prices in March 2017. This contrasts to the previous year when they had started to rise from their extreme lows in January/February 2016.

The above said, positive inflation was apparent in every single one of the categories that ONS measure – the first time this has happened for nearly three years. The impact of the recent rises in input prices (17.9%) and factory gate prices (3.6%) is now feeding through to the retail world. Goods inflation rose sharply to 2.5% (1.9%) and it exceeded service inflation for the first time in 5 years.

The rise in goods inflation was partly as a result of genuine rises in categories such as food. Food prices normally decline between February and March, but they increased this year. Rises were seen fairly broadly across the food sector and mainly reflects higher import prices.

However some of the increase in goods prices are probably erroneous and will fall out the calculation next month. For example, the sharp rises in alcohol and tobacco prices have more to do the with timing of the ONS data collection and the budget this year vs last year. In addition, the highly volatile ONS clothing and footwear index saw a rise this month which may well be reversed in April.

Therefore predicting next month’s inflation figure is going to be tricky. On the positive side, there are hikes in council tax and gas/electricity prices to factor in, as well as higher air fares over Easter. But this will be balanced out by reversals in the erroneous factors this month such as the apparent budget rises and clothing gyrations. In addition, this time last year, petrol prices rose sharply, whilst they are declining in 2017. The best guess is that inflation will remain around the same level or decline very slightly in April.

Indeed looking at the inflation stats elsewhere in Europe, shows that February numbers marked a high point and levels have come down a little for most countries. But the future path for UK and worldwide inflation very much depends a lot on crude oil and other commodity prices. Since the big decline in nearly all commodity prices in 2014/5, they have stabilised at historically low levels. If the next move in commodities was upwards, it would trigger a significant burst in worldwide inflation.

The full ONS analysis can be found here.

Latest UK inflation data – February 2017

UPDATE: Listen to Pete Comley talk about the latest inflation figures on Share Radio:

ShareRadio210317-2

Today saw the introduction of the new headline inflation measure of CPIH. I have blogged about this in detail over the last few days (here and here) and so this bulletin will initially focus on the general inflation trends of CPI before returning to CPIH.

The UK now has three measures of inflation being used by different stakeholders, RPI, CPI and now CPIH:

Inflation trends

There was a steep rise in inflation today with CPI going up 0.5% to 2.3% and RPI by 0.6% to 3.2%. These are the highest inflation levels we have seen in the UK for two and half years and above the Bank of England’s inflation target of 2%.

The main “driver” (no pun intended) for the increasing rate was car fuel prices which continued to rise in February and are now nearly 20p higher than this time last year. However, there were also rises across a number of other goods which follow on from the higher factory gate prices that have been seen in recent months. Input prices rose 19% in the latest period (a combination of the Brexit devaluation and higher commodity prices) and factory gate prices by 3.7%.

This means that goods inflation in CPI is now running at nearly 2% – having been largely negative for the last few years. Examples of goods with significant price rises over the last 12 months include: fish, coffee, many fruits and vegetables (from Iceberg lettuce to potatoes to grapes), laptops/tablets, cameras, and new cars.

Core inflation is up to 2% – its highest level since June 2014. The trend for inflation is that will probably carry on going up, but next month may see a decline in the speed of the rise with CPI/CPIH rising to around 2.5%. Thereafter once the electricity and council tax price rises kick in during April, we’ll likely see another leg up for inflation.

The above said, a lot depends on the global price of crude oil, as this quickly feeds into petrol prices. It has slipped back recently and this may temper increasing inflation over the next few months.

CPIH

ONS were lucky that on the day they switched the headline measure to CPIH that it came out the same number as CPI. Therefore criticism (see here) of their methods have been more limited than it might have been. However our analysis (see here) clearly indicates that as time goes by and the UK inflation rate rises, there is going to be a greater disparity between the two measures. CPIH may even be 0.3% lower than CPI by the end of the year.

If by then, the government has decided to switch the inflation measure used for benefits and pensions to CPIH, it could start to have an effect on living standards. Although some benefits are temporarily frozen, many are not. Those related to disability, carers, maternity and pensioners are still all being index linked to an inflation measure (CPI today).

Indexation of state pensions might also be reduced by CPIH. The Triple Lock on pensions ensures they rise by the minimum of 2.5%, earnings (currently 2.3%) and inflation (2.3% today). The Bank of England predict that CPI will rise to nearly 3% by the year end and so next time pensions get revised (in November), it will probably be by the rate of inflation. However should there have been a switch to CPIH by then, pensioners may well get less.

The latest report from the ONS can be found here and the data tables that include RPI here.