Inflation and the Consumer Price Index
Inflation and the Consumer Price Index
A brief description of Consumer Price Inflation
Inflation and the Consumer price index 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. A way to understand a price index is to think of a very large shopping basket containing all the goods and services bought by households.
What does The CPI do?
The price index estimates changes to the total cost of this basket.
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.
A range of measures of consumer price and other price inflation are published. A tale of many price indices summarises information on the different measures.
The Consumer Price Index (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.
Where do you get it from?
Consumer price indices are published monthly by the Office for National Statistics. [LINK]
Why is it important
The CPI is important because it is used for uprating pensions, wages and benefits and can help in our understanding of just how inflation affects the average family budgets.
Latest figure and long-term trend
The CPI 12-month rate (the amount prices change over a year) If this stood at 0.1%, this would mean that a basket of goods and services that cost £100.00 in last year would cost £100.10 this year. You can then follow the trend over the last couple of months to predict the potential future movement.
The categories
It is important to understand the categories which are included in the CPI and the impact the fall or rise in each category has on the whole.
In the United Kingdom, the most important categories in the consumer price index are:-
Transport (16.2 percent of the total weight)
Housing, Water, Electricity, Gas and Other fuels (14.4 percent).
Recreation and Culture accounts (13.4 percent).
Restaurants and Hotels (11.4 percent).
Food and Non-alcoholic Beverages (11.2 percent).
Miscellaneous Goods and Services (9.6 percent);
Clothing and Footwear (6.5 percent);
Furniture, Household Equipment and Maintenance (6.1 percent).
Alcoholic Beverages and Tobacco; Health, Communication and Education account for remaining (11.2 percent of total weight).
How does this split compare to your personal household spend?
Never thought about it?
Other useful links
Trading Economics [Link]
The Office For National Statistics [Link]
But please remember…