CPI Holds at 6.7 per cent as Measures of Underlying Inflation Remain High

Main points

• Annual consumer price inflation was 6.7 per cent in September, unchanged from August. This figure reflects decreases in the annual rates of inflation of items such as food and alcoholic beverages, and furniture and household goods being offset by price rises in motor fuels and categories such as transport and education.
• Food inflation fell to an annual rate of 12.1 per cent, down from 13.6 per cent in August. Still, that it remains so elevated is concerning since there is no government support to help households (especially lower income households, who spend a greater part of their incomes on food) offset this cost.
• Core CPI was 6.1 per cent in the year to September, down from 6.2 per cent in August; NIESR’s measure of trimmed-mean CPI inflation fell from 7.9 per cent to 7.3 per cent on the month; and annual services CPI inflation rose marginally from 6.8 per cent in August to 6.9 per cent in September. These measures indicate that underlying inflationary pressures remain elevated and continue to generate persistence in the headline rate.
• The ONS recently released an article on the role of labour costs and profits in UK inflation from 2010 to 2023. The article finds that the GDP deflator (a good measure of domestic inflation) rose by 7.9 per cent in the year to the second quarter of 2023; of this, higher unit labour costs contributed around 3.3 percentage points while higher unit profits contributed about 1.6 percentage points, in line with previous inflation cycles. Thus, the article finds that there has been no clear increase in the relative contributions of each of these components in domestic inflation in recent quarters compared to the time period studied.

“Today’s data indicates that annual CPI inflation was 6.7 per cent in September, unchanged from August, as downwards contributions, particularly from the food and non-alcoholic beverages category, were offset by price rises in motor fuels and transport. Core CPI fell marginally to 6.1 per cent in September, down from 6.2 per cent in August while NIESR’s measure of trimmed-mean inflation fell from 7.9 per cent in August to 7.3 per cent in September. Altogether, these data demonstrate that elevated underlying inflationary pressures continue to generate persistence in inflation, meaning it will fall more gradually than expected.”

 Paula Bejarano Carbo
Associate Economist, NIESR

For a breakdown of what inflation is and how it is calculated, read our blog post here.