NIESR CPI Tracker – July 2020

Underlying Inflation Diverges at Regional Level

Consumer price inflation increased by 0.1 percentage points to 0.6 per cent in the year to June 2020, as per data released by the ONS. Our new analysis of 97,101 locally collected goods and services indicates price increases in the clothing and footwear, health, and miscellaneous goods and services categories. Our measure of underlying inflation, which excludes the most extreme price changes, decreased by 0.2 percentage points to 1 per cent in June 2020. The regional figures for underlying inflation continue to show significantly different trends: consumers in London benefitted from a decrease in underlying inflation while Wales saw a third month of underlying inflation above 2 per cent. While this is the first decrease in national underlying inflation since the lockdown, it still remains above its pre-lockdown level and for that reason our forecast suggests headline CPI inflation above 2 per cent in the 12 months to June 2021.

Main points

• Underlying inflation decreased by 0.2 percentage points to 1 per cent in the year to June 2020, 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 Wales at 2.2 per cent and lowest in London which saw a reduction of 0.1 per cent in the year to June 2020 (table 1).
• 21.6 per cent of goods and services prices changed in June, implying an average duration of prices of 4.6 months. 6.5 per cent of prices were reduced due to sales, 4.7 per cent fell for other reasons and 10.4 per cent were increases (figure 2).
• The historical relationship between current trimmed mean inflation and future CPI inflation implies CPI inflation above 2 per cent in the year to June 2021.

“Headline CPI inflation increased to 0.6 per cent in the year to June 2020, up from 0.5 per cent recorded in May. Our analysis of approximately 97,000 goods and services included in the basket indicates higher prices in the clothing and footwear, health, and miscellaneous goods and services categories. Our measure of underlying inflation, which excludes extreme price movements, decreased to 1 per cent in June. On this basis, we expect CPI inflation to settle slightly above the Bank of England’s target of 2 per cent in the coming year.”

Janine Boshoff
Economist, Macroeconomic Modelling and Forecasting

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