NIESR Press Note - NIESR reacts to the latest ONS CPI inflation statistics released today

Published: 14th November 2018

 

According to figures released this morning by the ONS, consumer price index inflation was unchanged at 2.4 per cent in the year to October 2018. Our new analysis of the prices of the 136,178 goods and services included in the index this month, however, suggests that this apparent stability masks an easing in inflationary pressure at the national and regional level.

 

Main points

  • Underlying inflation fell by 0.2 percentage points to 0.7 per cent in the year to October 2018, as measured by the trimmed mean, which excludes 5 per cent of the highest and lowest price changes (figure 1).
  • At the regional level, underlying inflation was highest in London at 1 per cent and lowest in Northern Ireland at 0.3 per cent in the year to October 2018 (table 1).
  • 18 per cent of goods and services prices changed in October, implying an average duration of prices of 5.6 months: 4.9 per cent of prices were reduced due to sales, which is the lowest for the month of October since 2013; 3.6 per cent fell for other reasons; and 9.2 per cent were increases, which is the second lowest for the month of October since 2007 (figure 2).
  • The historical relationship between current trimmed mean inflation and future CPI inflation implies CPI inflation of 1.9 per cent in the year to October 2019.

 

Dr Jason Lennard, Senior Economist, said: “CPI inflation was unchanged at 2.4 per cent in the year to October 2018. Based on our analysis of 135,000 goods and services in the basket, however, we found evidence that inflationary pressures were subsiding. While there were fewer items sold at sales prices, there were more permanent price decreases and less price increases compared to previous years. The weakness in underlying inflation is reflected in our measure of trimmed mean inflation, which excludes a fraction of the most volatile price changes. By this measure, underlying inflation is on a downward trend, falling by 0.2 percentage points to 0.7 per cent in the year to October. This weakness is widespread, as underlying inflation fell in every region of the country except for Yorkshire and the Humber.”

 

This analysis builds on the work presented in the National Institute Economic Review, which constructs a measure of trimmed mean inflation based on the goods and services prices that underlie the consumer price index.

 

Our next analysis of consumer prices will be published on 16 January 2019.

 

Figure 1. Inflation: CPI and trimmed mean

Note: Our measure of trimmed mean inflation excludes 5 per cent of the highest and lowest price changes. The level of trimmed mean inflation is typically lower than CPI inflation due to differences in how the largest price changes are treated and to how the prices are weighted.

 

Figure 2. Decomposing price changes: Decreases due to sales, decreases due to other reasons and increases

 

Note: Our measure of trimmed mean inflation excludes 5 per cent of the highest and lowest price changes. The level of trimmed mean inflation is typically lower than CPI inflation due to differences in how the largest price changes are treated and to how the prices are weighted.

 

ENDS

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Notes for editors:

 

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NIESR aims to promote, through quantitative and qualitative research, a deeper understanding of the interaction of economic and social forces that affect people's lives, and the ways in which policies can improve them.

 

Further details of NIESR’s activities can be seen on http://www.niesr.ac.uk or by contacting enquiries [at] niesr.ac.uk . Switchboard Telephone Number: +44 (0) 207 222 7665

 

 

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