Essential reading for retailers and suppliers in the home improvement market

CPI inflation remains unchanged at 2.4%

Published: 14 November 2018 - Fiona Garcia
 

The latest figures from the Office of National Statistics (ONS) reveal that consumer price index (CPI) inflation was unchanged at 2.4% in the year to October 2018 but experts suggest this apparent stability masks an easing in inflationary pressure at the national and regional level.

Whilst the figure remained flat on September 2018, large downward contributions to the 12-month rate from food and non-alcoholic beverages, clothing and footwear, and some transport elements were offset by upward contributions from rising petrol, diesel and domestic gas prices.

Other smaller upward contributions came from items in the miscellaneous goods and services, recreation and culture, and communication sectors.

ONS head of inflation Michael Hardie said of today’s CPI figures: “Prices paid by consumers continued to rise at a steady rate with falls in food and clothing offset by rising utility bills and petrol, as crude prices continued to rise.

However, analysis by the National Institute of Economic and Social Research of the prices of the 136,178 goods and services included in the index this month revealed that underlying inflation fell by 0.2 percentage points to 0.7% in the year to October 2018, as measured by the trimmed mean, which excludes 5% of the highest and lowest price changes.

According to the National Institute of Economic and Social Research (NIESR), the prices of 18% of goods and services changed in October, implying an average duration of prices of 5.6 months. Within that, 4.9% of prices were reduced due to sales, which is the lowest figure for the month of October since 2013; whilst 3.6% fell for other reasons; and 9.2% were increases, which is the second lowest for the month of October since 2007.

 

NIESR senior economist Dr Jason Lennard said: “Based on our analysis of 135,000 goods and services in the basket… 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.

 

At the regional level, underlying inflation was highest in London at 1% and lowest in Northern Ireland at 0.3% in the year to October 2018.

 

Mr Lennard continued: “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... This weakness is widespread, as underlying inflation fell in every region of the country except for Yorkshire and the Humber.”

 

Due to the historical relationship between the current trimmed mean inflation and future CPI inflation, NIESR forecasts CPI inflation of 1.9% in the year to October 2019. This is below the Bank of England’s expectation that inflation will gently decline but remain just above its 2% target in two years’ time, as it gradually raises borrowing costs. In its latest report, which mapped out the expected path for rates and the economy, the Bank of England forecast that CPI inflation will be around 2.1% in Q4 2019.

Meanwhile, yesterday the ONS announced that employees’ basic wages rose at their fastest pace since 2008 in the three months to September, supporting the Bank of England’s view that a long period of weak pay increases is coming to an end and that it will need to raise interest rates in order to keep inflation at its 2% target in coming years.

However, experts suggest the 3.2% wage growth reported on Tuesday remained fairly meagre by historical standards, when adjusted for rising prices.

ONS’ Michael Hardie added that, “house price growth ticked up a little, as increases in Wales, Scotland and the Midlands were to some extent offset by falls in central London.”

The overall increase was reported at an annual 3.5% for September, whilst prices in London fell by 0.3%.

 

 

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