NIESR CPI Tracker – December 2019

According to figures released this morning by the ONS, consumer price index inflation decreased to 1.5 per cent in the year to October 2019. Our new analysis of 129,752 locally-collected goods and services prices suggest that consumers benefitted from changes to the energy price cap. Furthermore, declines in the prices related to durable household equipment and furniture made another significant downward contribution to consumer prices in October. Underlying inflation, which excludes the most extreme price changes, grew at 1 per cent or less in 10 of the 12 national regions. The reduction in regional underlying inflation contributed to the national average moderating by 0.1 percentage point in October. CPI inflation remains close to the Bank’s 2 per cent target.

Figure 1 – CPI and trimmed mean inflation (per cent)

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. Source: ONS, NIESR calculations.

Main points

• Underlying inflation increased by 0.1 percentage point to 1.0 per cent in the year to November 2019, 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 the North at 1.5 per cent and lowest in the South West at 0.7 per cent in the year to November 2019 (table 1).
• 19.1 per cent of goods and services prices changed in November, implying an average duration of prices of 5.2 months. 5.1 per cent of prices were reduced due to sales, 3.5 per cent fell for other reasons and 10.5 per cent were increases (figure 2).
• The historical relationship between current trimmed mean inflation and future CPI inflation implies CPI inflation of 2.1 per cent in the year to November 2020.

NIESR economist Janine Boshoff said: “Headline CPI inflation remained unchanged at 1.5 per cent in the year to November 2019. Our analysis of approximately 130,000 goods and services included in the basket, indicates that higher inflation related to food and non-alcoholic beverages and recreation and culture was offset by lower inflation in alcoholic beverages and tobacco, clothing and footwear, and restaurants and hotels. Our measure of underlying inflation, which excludes extreme price movements, increased by 0.1 percentage point to 1.0 per cent in November. Underlying inflation increased in most regions of the UK. On this basis, we expect CPI inflation to settle around the Bank of England’s target of 2 per cent in the coming year.”

See our last tracker to follow the analysis