How much CPI underestimates inflation

There are three main areas which probably cause CPI to underestimate inflation in the UK. Each of them is discussed in detail elsewhere on this site:

The total underestimation of true inflation is around 1 to 1.5 per cent. The exact amount is variable and there is no simple consistent adjustment that can be made to determine it. This implies that when CPI is at its target of 2 per cent, inflation in the UK is truly around 3-3.5 per cent. The key components of the difference are listed in the table below:

CPI underestimation

Source: ONS for housing and geometric means effects. Author best estimates for substitution effects.