CPI, CPIH, RPI and RPIJ inflation price indices for June 2014 - brief description and analysis
Consumer price inflation is the speed at which the prices of goods and services bought by households rise or fall. Consumer price inflation is estimated by using price indices. One way to understand a price index is to think of a very large shopping basket containing all the goods and services bought by households. The price index estimates changes to the total cost of this basket. ONS consumer price indices are published monthly.
A price index can be used to measure inflation in a number of ways. The most common is to look at how the index has changed over a year. This is calculated by comparing the price index for the latest month with the same month a year ago. This is known as the 12-month inflation rate. This bulletin measures inflation to June 2014, so the 12-month rate measures changes in prices between June 2013 and June 2014.
ONS publishes a range of measures of consumer price and other price inflation. A tale of many price indices summarises information on the different measures.
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. For more information see Users and uses of consumer price inflation statistics.
The CPI 12-month rate (the amount prices change over a year) between June 2013 and June 2014 stood at 1.9%. This means that a basket of goods and services that cost £100.00 in June 2013 would have cost £101.90 in June 2014. The latest information continues the trend of below 2.0% inflation during 2014. This is only the second time since June 2013 that the inflation rate has risen compared with the previous month and it is the largest increase between two months since the rise from 2.2% to 2.7% between September and October 2012.
Over the last five years, the three main contributors to the 12-month inflation rate have been food & non-alcoholic beverages, housing, water, electricity, gas & other fuels and transport (including motor fuels).
This section explains which goods and services had the biggest impact on the change to the 12-month rate between May and June 2014 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 two consecutive months. An alternative, and equally valid, approach is to calculate it by comparing the price change between the latest two months and the price change between the same two months a year ago. Explaining the contribution to change in the 12-month rate is a diagram explaining the calculation.
The CPI rose by 0.2% between May and June 2014, compared with a fall of 0.2% between the same two months in 2013. The 1-month movement was therefore 0.4 percentage points higher this year compared with last year. This led to the CPI 12-month rate rising from 1.5% in May to 1.9% in June.
The largest upward contributions to the change in the CPI 12-month rate between May and June 2014 came from:
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 Official Statistics and found not to meet the required standard for designation as National Statistics. The full assessment report can be found on the UK Statistics Authority website.
The RPI is a long-standing measure of UK inflation that has historically been used for a wide range of purposes such as the indexation of pensions, rents and index-linked gilts. For further information see Users and uses of consumer price inflation statistics.
RPIJ is an improved variant of the Retail Prices Index, which is calculated using formulae that meet international standards. The rationale for creating RPIJ was to give users a better alternative to the RPI if their needs were for a measure of inflation based on the same population, classifications, weights etc as the RPI. Currently, RPIJ also acts as an analytical series in that it allows users to see the impact of using the Jevons (which meets international standards) in place of the Carli formula (which does not meet international standards) in the RPI. The use of the different formulae at the elementary aggregate level is currently the only difference between the two indices. ONS does not produce detailed goods and services indices for RPIJ.
In June 2014, the 12-month rate for RPIJ stood at 2.0%, up from 1.7% in May. CPIH and RPIJ broadly continue to track each other as they have done for the last two years.
The RPI 12-month rate for June 2014 stood at 2.6%, meaning that it was 0.6 percentage points higher than it would have been had it used formulae that meet international standards.
Figure D shows the RPI and RPIJ 12-month rates for the last 10 years. Over this period the RPIJ 12-month rate has been, on average, 0.5 percentage points lower than the RPI but the difference has increased to an average of 0.7 percentage points over the last 3 years. Cumulatively, inflation as measured by the RPI is 37.2% over the 10 year period, compared with 30.4% as measured by the RPIJ. The use of the Carli formula has therefore added 6.8 percentage points to the change in prices over the last 10 years.
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The CPI, CPIH, RPIJ and RPI are compiled using the same underlying price data, based on a large and representative selection of around 700 individual goods and services for which price movements are measured in around 140 randomly selected areas throughout the UK. Around 180,000 separate price quotations are used every month to compile the indices. The outlets in which the prices are collected are selected randomly. Expenditure weights are held constant for 1 year at a time.
Estimate of retail sales in volume and value terms, seasonally and non-seasonally adjusted.
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