2. Analysis of consumer price inflation

CPIH 12-month inflation rate

Table 1: OOH component and CPI index values and 12-month inflation rates

UK, October 2018 to October 2019 CPIH Index

(UK, 2015 = 100) CPIH 12-

month rate CPI Index

(UK, 2015=100) CPI 12-

month rate OOH Index

(UK, 2015=100) OOH 12-

month rate 2018 Oct 106.7 2.2 106.7 2.4 106.0 1.1 Nov 106.9 2.2 107.0 2.3 106.1 1.1 Dec 107.1 2.0 107.1 2.1 106.2 1.2 2019 Jan 106.4 1.8 106.3 1.8 106.2 1.1 Feb 106.8 1.8 106.8 1.9 106.3 1.1 Mar 107.0 1.8 107.0 1.9 106.4 1.1 Apr 107.6 2.0 107.6 2.1 106.5 1.2 May 107.9 1.9 107.9 2.0 106.6 1.2 Jun 107.9 1.9 107.9 2.0 106.7 1.2 Jul 108.0 2.0 107.9 2.1 106.8 1.2 Aug 108.3 1.7 108.4 1.7 106.9 1.1 Sep 108.4 1.7 108.5 1.7 107.1 1.1 Oct 108.3 1.5 108.3 1.5 107.2 1.2 Download this table Table 1: OOH component and CPI index values and 12-month inflation rates .xls .csv

Figure 1: CPIH and CPI 12-month inflation rates fall to lowest since late 2016 CPIH, OOH component and CPI 12-month rates for the last 10 years, UK, October 2009 to October 2019 Source: Office for National Statistics – Consumer price inflation Download this chart Figure 1: CPIH and CPI 12-month inflation rates fall to lowest since late 2016 Image .csv .xls

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 1.5% in October 2019, down from 1.7% in September 2019.

The Consumer Prices Index (CPI) 12-month inflation rate was 1.5% in October 2019, down from 1.7% in September 2019.

Table 1 presents the index numbers and inflation rates for the CPIH, CPI and owner occupiers’ housing costs (OOH) component of the CPIH.

Figure 1 compares the 12-month inflation rates for the CPIH, CPI and OOH component of the CPIH. Given that OOH account for around 17% of the CPIH, it is the main driver for differences between the CPIH and CPI inflation rates.

Contributions to CPIH 12-month inflation rate

Figure 2: Contribution to inflation from housing and household services falls Contributions to the CPIH 12-month inflation rate, UK, October 2017 to October 2019 Source: Office for National Statistics – Consumer price inflation Notes: Individual contributions may not sum to the total because of rounding. More information on the contents of each group can be found in Table 3 in the accompanying Consumer price inflation dataset Download this chart Figure 2: Contribution to inflation from housing and household services falls Image .csv .xls

Figure 2 shows the extent to which the different categories of goods and services have contributed to the overall Consumer Prices Index including owner occupiers’ housing costs (CPIH) 12-month inflation rate over the last two years.

Since November 2018, the largest upward contribution to the CPIH 12-month inflation rate has come from housing and household services. However, the prices of electricity, gas and other fuels fell by 2.0% in the year to October 2019 and made a negative contribution of 0.05 percentage points to the headline rate. In October 2019, the Office of Gas and Electricity Markets (Ofgem) changed the energy price cap, which meant that energy prices fell by 4.4% between September and October 2019 but increased by 2.3% between the same two months a year ago. However, this was more than offset by positive contributions from owner occupiers’ housing costs (OOH) (a 0.19 percentage point contribution), and Council Tax and rates (a 0.12 percentage point contribution), resulting in the contribution from housing and household services to the overall rate falling to 0.34 percentage points, from 0.52 percentage points in September. The size of the contribution to the CPIH 12-month inflation rate from the division has fallen since May 2019 as a result of fluctuating contributions from electricity, gas and other fuels.

There was also a large upward contribution (of 0.31 percentage points) to the CPIH 12-month inflation rate from restaurants and hotels, where prices rose in the year to October 2019 by 3.2%.

The contribution to the CPIH 12-month inflation rate from transport increased for the first time since April 2019. Since April, transport’s contribution to the 12-month inflation rate has reduced from 0.56 percentage points as a result of falling contributions from fuels and lubricants; and transport services. Its contribution fell to 0.07 percentage points in September 2019 before rising to 0.09 percentage points in October 2019. This month’s increase in contribution was a result of larger contributions from transport services (in particular from air, sea and rail fares), where prices overall increased by 3.6% in the year to October 2019. The contribution from motor fuels in October 2019 was negative for the third month in a row and increased in magnitude, reflecting a 3.3% fall on the year in pump prices.

In October 2019, clothing and footwear produced a small upward contribution (of 0.03 percentage points) with prices rising by 0.5% in the year. This means that all divisions produced upward contributions to the CPIH 12-month inflation rate. However, its contribution has been negative for most months since September 2018.

Contributions to change in CPIH 12-month inflation rate

Figure 3: Reduced utility prices contribute to falling headline inflation rate Contribution to change in the CPIH 12-month inflation rate, UK, between September and October 2019 Source: Office for National Statistics – Consumer price inflation Notes: Individual contributions may not sum to the total change in the headline rate between the latest two months because of rounding. More information on the contents of each group can be found in Table 3 in the accompanying Consumer price inflation dataset. Download this chart Figure 3: Reduced utility prices contribute to falling headline inflation rate Image .csv .xls

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 inflation rate between September and October 2019. 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 (of 0.18 percentage points) to the change in the CPIH 12-month inflation rate came from housing and household services. This can be fully attributed to gas and electricity prices, which fell by 8.7% and 2.2%, respectively, between September and October 2019. This month’s downward movement partially reflected the response from energy providers to the Office of Gas and Electricity Markets’ (Ofgem’s) six-month energy price cap, which came into effect from 1 October 2019. Gas and electricity prices had both risen by 2.0% between the same two months a year ago.

There was a large downward contribution (of 0.06 percentage points) to the change in the annual rate from furniture, household equipment and maintenance. This reverses the upward contribution of 0.06 percentage points seen between August and September 2019. Prices overall for furniture, household equipment and maintenance fell by 1.1% between September and October this year compared with a fall of 0.1% a year ago.

Overall, there was a large downward contribution (of 0.04 percentage points) from recreation and culture, where prices rose between September and October 2019 but by less than a year ago. The main downward contribution came from games, toys and hobbies (specifically from computer game consoles and toy vehicles); books; and cultural services, which were partially offset by a small upward contribution from late-booked package holidays, where prices rose by more than a year ago.

There was a small downward contribution from food and non-alcoholic beverages. Most of this downward movement came from vegetables (including potatoes) and fruit where prices fell this year but rose a year ago. There were small, partially offsetting upward movements across the food division and from non-alcoholic beverages, where prices overall fell by less than a year ago.

The largest upward contribution to the change in the CPIH 12-month inflation rate came from clothing and footwear, which contributed 0.08 percentage points. Across the division, the largest movements came from ladies’ clothes and footwear, where prices rose this year compared with falls a year ago. The only two standout items were ladies’ formal trousers and branded trainers.

Overall, there was a small upward contribution (of 0.02 percentage points) from transport, where upward movements from air, sea and rail fares and new cars were partially offset by a downward movement from fuels and lubricants. Petrol prices fell by 0.8 pence per litre, between September and October 2019, to stand at 126.5 pence per litre while diesel prices fell to 131.4 pence per litre – a fall of 0.4 pence per litre. Last year, petrol and diesel prices had risen by 0.4 and 1.8 pence per litre, respectively, between the same two months.

Finally, there was a small upward movement from alcoholic beverages with upward contributions coming from bottles of whisky, vodka and lager, where prices rose this year but fell a year ago. These movements were partially offset by a small downward movement from sparkling wine, where prices fell this year but rose a year ago.

Owner occupiers’ housing costs

Figure 4: Falling utility prices reduce the contribution of OOH to the headline rate Contributions of housing components to the CPIH 12-month inflation rate, UK, January 2015 to October 2019 Source: Office for National Statistics – Consumer price inflation Notes: Individual contributions may not sum to the total because of rounding. Download this chart Figure 4: Falling utility prices reduce the contribution of OOH to the headline rate Image .csv .xls

Figure 4 shows the contribution of owner occupiers’ housing costs (OOH) and Council Tax to the Consumer Prices Index including owner occupiers’ housing costs (CPIH) inflation rate in the context of wider housing-related costs. The contribution from OOH had been on a downward trend from a high in October 2016. However, it has stabilised over the last year and was the largest contribution to the CPIH 12-month inflation rate from all the housing and household services categories for the majority of months of 2019, including September.

Electricity, gas and other fuels made a negative contribution during 2015 and 2016, but subsequent rises, most notably in electricity prices, saw the contribution turn positive through 2017 into 2018. Further electricity and gas price rises in summer and autumn 2018 increased their contribution to the CPIH 12-month rate. The introduction of Office of Gas and Electricity Markets’ (Ofgem’s) initial energy price cap resulted in reduced contributions to the CPIH 12-month inflation rate for January to March 2019, but the contribution increased in April 2019 as energy providers responded to the latest change in the price cap. This month, the contribution to the CPIH annual inflation rate from electricity, gas and other fuels became negative reflecting the response from energy providers to Ofgem’s six-month energy price cap, which came into effect from 1 October 2019.

Increases in Council Tax starting in 2016 mean that its contribution has risen over recent years, though there was little change in the contribution when the 2019 increases were introduced in April this year. Conversely, the reduction in the contribution from rents is likely to be a result of a policy to reduce social housing rent starting from April 2016, although the contribution has risen slightly over the last year. Other housing costs (namely regular maintenance and repair, along with water and sewerage services) tend to make small contributions to the 12-month inflation rate.