3. Consumer Prices Index (CPI)

What is 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 UK 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. For more information see Users and uses of consumer price inflation statistics (2013).

Latest figure and long-term trend

The CPI 12-month rate (the amount prices change over a year) between June 2015 and June 2016 stood at 0.5%. This means that a basket of goods and services that would have cost £100.00 in June 2015 cost £100.50 in June 2016.

The rate is the same as observed for March and slightly above the 0.3% recorded for all other months of 2016. The rates for 2016 to date are still relatively low but are above those generally experienced in 2015, which was a year of historically low inflation, with the rate being at or around zero for much of the year. The largest downward pull on inflation in June 2016 and for 2016 to date comes from prices for food and non-alcoholic beverages. There also continues to be a downward pressure from transport prices, but this has eased during 2016 from the 2015 position. Upward pressures come from a variety of categories, most notably restaurant and hotel bills.

Figure A shows the contributions to the CPI 12-month rate in June 2016 compared with the contributions to the 12-month rate a year earlier.

Figure A: Contributions to the CPI 12-month rate, June 2015 and June 2016 UK Source: Office for National Statistics Notes: Individual contributions may not sum to the total due to rounding. More information on the contents of each group can be found in Table 3 in the accompanying consumer price inflation dataset tables. Download this chart Figure A: Contributions to the CPI 12-month rate, June 2015 and June 2016 Image .csv .xls

Figure B shows the CPI 12-month rate for the last 10 years. Table A shows the CPI 1-month rate (the amount prices change between 2 consecutive months), 12-month rate and index values for the last year.

Figure B: CPI 12-month inflation rate for the last 10 years, June 2006 to June 2016 UK Source: Office for National Statistics Download this chart Figure B: CPI 12-month inflation rate for the last 10 years, June 2006 to June 2016 Image .csv .xls

Table A: CPI index values, 1-month and 12-month rates, June 2015 to June 2016 UK Index1 (UK, 2015 = 100) 1-month rate 12-month rate 2015 Jun 100.2 0.0 0.0 Jul 100.0 -0.2 0.1 Aug 100.3 0.2 0.0 Sep 100.2 -0.1 -0.1 Oct 100.3 0.1 -0.1 Nov 100.3 0.0 0.1 Dec 100.3 0.1 0.2 2016 Jan 99.5 -0.8 0.3 Feb 99.8 0.2 0.3 Mar 100.2 0.4 0.5 Apr 100.2 0.1 0.3 May 100.4 0.2 0.3 Jun 100.6 0.2 0.5 Source: Office for National Statistics Notes: 1. From February 2016, CPI and CPIH indices have been re-referenced and published with 2015=100. This does not impact on published inflation rates. Download this table Table A: CPI index values, 1-month and 12-month rates, June 2015 to June 2016 .xls

Consumer Prices Index (CPI): What are the main movements?

This section explains which goods and services had the biggest impact on the change to the 12-month rate between May and June 2016 and, where relevant, considers the longer-term inflationary trends for these goods and services.

The change in the CPI 12-month rate can be calculated by comparing the 12-month rates for 2 consecutive months. An alternative, and equally valid, approach is to calculate it by comparing the price change between the latest 2 months and the price change between the same 2 months a year ago. The diagram explaining the contribution to change in the 12-month rate (2013) explains the calculation.

The CPI rose by 0.2% between May and June 2016, compared with a negligible change between the same 2 months a year earlier. The 1-month movement was therefore 0.2 percentage points higher this year compared with a year ago, leading to a rise in the CPI 12-month rate.

Between May and June 2016, the main upward contributions to the change in the CPI 12-month rate came from the following groups.

Transport: prices, overall, rose by 1.1% between May and June this year compared with a rise of 0.2% between the same 2 months a year ago. Within transport, the largest upward effect came from air fares, which rose by more than a year ago, with the main contribution coming from European routes. The 10.9% rise in fares this year was the largest May to June movement on record although it is important to note that air fares are highly variable. Motor fuel prices also rose by more than a year ago, with petrol and diesel prices rising by 2.3 and 2.6 pence per litre respectively between May and June 2016. A smaller upward effect came from changes in sea transport fares, though this was offset by a downward pull from rail transport.

Recreation and culture: prices, overall, rose by 0.6% this year compared with a fall of 0.1% a year ago. The upward contribution came principally from games, toys and hobbies (particularly computer games) with prices rising between May and June 2016 compared with a fall last year. Other smaller upward effects came from cultural services and books.

Communication: the upward contribution came from telephone equipment and services with prices, overall, rising by 0.6% between May and June this year compared with a fall of 0.2% between the same 2 months a year ago. The effect came principally from mobile phone charges which fell this year but by less than a year ago.

The main downward contributions to the change in the CPI 12-month rate between May and June 2016 came from the following groups.

Furniture, household equipment and maintenance: prices, overall, fell by 0.3% between May and June this year but rose by 0.3% between the same 2 months a year ago. The downward contribution came almost entirely from furniture and furnishings, particularly kitchen units.

Restaurants and hotels: prices, overall, rose by 0.1% this year compared with a larger rise of 0.4% a year ago. The downward effect came from accommodation services, where prices for overnight hotel accommodation fell this year but rose a year ago.

Figure C shows the contributions to the change from each part of the CPI basket of goods and services.