Posts Tagged ‘RPIX’
Tuesday, May 18th, 2010
CPI annual inflation which is targeted by the government at 2.0%, rose to 3.7% in April from 3.4% in March according to figures released this morning by the Office for National Statistics.
The largest pressures on prices came from clothing and footwear which rose by 2.2% and was particularly fuelled by increases in the price of women’s clothing; widespread increases in food prices which went up by 2.6% overall, much of which was blamed on the closure of European airspace due to volcanic ash from Iceland (the country, not the retailer); and, a 2.1% hike in alcohol and tobacco prices due to higher duty imposed in the last Budget.
The recent trend in inflation can be seen in the graphic below.
 Annual Inflation rates: 12 month percentage chage Source: ONS The Retail Price Index, which is used as a guide in agreeing some national wage settlements, actually rose to 5.3% in April, which was the highest figure since July 1991 and compares with 4.4% in March. Not only was this affected by the same elements which caused CPI to rise, there was also an additional upward pressure from housing costs. This was particularly due to mortgage interest costs. Although these only rose by 0.6% in April this year, this compares with a 7.7% decrease a year ago as a result of the reduction in Bank rate from 1.0% to 0.5%.
It is these year-on-year comparisons which make interpreting inflation figures quite tricky. Even if mortgage interest costs had fallen slightly this year, there would still have been an inflationary impetus as they fell by such a large amount 12 months ago.
RPIX inflation, which measures the RPI minus mortgage interest payments, was 5.4% in April compared to 4.8% in March. And, compared to the EU, UK inflation rates are well ahead. Latest comparable figures for March show an EU average of 1.9%, compared to the UK’s rate of 3.4%. This comparative difference will offset some of the gains from the decline in the value of sterling, as UK exporters try to compete in EU markets.
Tags: CPI, EU, Inflation, RPI, RPIX, sterling
Posted in Consumer Price Index, Inflation, Interest rates, Monetary Policy Committee, sterling | No Comments »
Wednesday, April 21st, 2010
So, inflation is still on the rise. The government’s target measure of CPI rose from 3.0% in February to 3.4% in March.
This was mainly due to the cost of gas and petrol prices and a spike in food prices. A weak level of sterling is coupling with very high prices for oil and other commodities, and on top of that poor weather in Spain has added to food prices. Also, there may be a knock-on effect on food prices as a result of the UK becoming a no-fly zone over the past week – with dwindling supplies of some foods in the shops.
The RPI measure of inflation was 4.4% in March, up from 3.7% in February. This was affected by the same factors as the CPI but also a rise in mortgage interest payments. RPIX inflation, which excludes mortgage interest payments, was up to 4.8% in March from 4.2% in February. The recent trend can be seen in the graphic below.
 Source: ONS The latest comparable figures for CPI inflation show that the UK rate of 3.0% in February was far higher than the 1.4% for the EU as a whole.
What then are the consequences of this continued rise in prices?
Firstly, savers are suffering. Real interest rates are actually negative at the moment, and according to the Moneyfacts website the average no-notice account after tax and inflation is standing at a very enticing minus 2.82%.
Secondly, there could be an impact on wages and employment. Wage growth has been very restrained in the private sector but many wage settlements take RPI into account. With some economists suggesting that RPI could rise as high as 5%, this is likely to put some pressure on wage settlements. Given the delicate nature of the recovery this could well have a major impact on employment.
Finally, how is the Bank of England going to react? There will certainly be pressure on the MPC to raise interest rates although the governor of the Bank of England, Mervyn King, has maintained that he expects inflation to full back towards its target level over the coming months. A hike in interest rates will doubtless damage the recovery. However, the measure for core inflation, which removes the more volatile items in the measure, only rose from 2.9% to 3% last month, so perhaps pressures are not as great as they seem.
Tags: Bank of England, core inflation, CPI, Inflation, Interest rates, MPC, RPI, RPIX, savings, wage rates
Posted in Bank of England, Consumer Price Index, Earnings, Employment, Inflation, Interest rates, Monetary Policy Committee, sterling | No Comments »
Wednesday, February 17th, 2010
The Consumer Prices Index (CPI) rose to 3.5% in January from 2.9% in December. According to the Office of National Statistics (ONS) this is the second largest ever increase in the annual inflation rate between two months. It follows on from the record increase of 1.0% in the annual inflation rate between November and December.
The reason for the increase was due to the restoration of the VAT rate in January to 17.5% and the increase in the price of petrol. This time last year petrol was 86.3p a litre and has now risen to 110.9p per litre. There was also an increase in some food prices with cauliflowers rising in price by 59.7%.
Because the CPI deviated more than 1% from its official target rate of 2.0%, the governor of the Bank of England was forced to write a letter of explanation to the Chancellor. In this, Mervyn King wrote that the committee saw this as a “temporary deviation”. He said: “Although it is likely to remain high over the next few months, inflation is more likely than not to fall back to the target in the second half of this year, as the short-run factors wane and the influence of spare capacity builds.”
The RPI measure of inflation, which is often quoted in wage negotiations, rose from 2.4% in December to 3.7% in January. The largest upward contribution to this change came from housing. This is because mortgage interest payments rose this year but had fallen significantly a year ago, when the majority of lenders passed on the decline in Bank rate which fell from 3.0% to 2.0%. This is the highest RPI figure since October 2008 and is the first time that RPI has exceeded the CPI figure since August 2008.
 Source: ONS The RPIX measure, which excludes mortgage interest payments, rose from 3.8% in December to 4.6% in January. And, what is particularly of interest, is that underlying inflation which excludes more volatile elements such as food and fuel, rose from 2.8% to 3.1%. This suggests that there are underlying pressures on prices, which could partly be due to the weakness of sterling, which is pushing up import prices.
UK inflation can be very difficult to budge and when looking at the December figures the UK CPI inflation rate stood at 2.9% compared to only 1.4% in the EU as a whole.
There are big implications of this jump in inflation for savers. Moneyfacts, who are experts in personal finance, suggest that with a typical savings account offering instant withdrawal only offering 0.73% in interest, basic rate taxpayers are losing the equivalent of 2.92% a year, and higher rate taxpayers are losing 3.06%.
Although the Bank feels that inflation will be back below target in the coming months, this could be upset by attempts to rectify the budget deficit after the election. Many City economists now believe that VAT will be raised to 20%, which will have a large inflationary impact if it comes to pass.
Tags: Bank of England, CPI, Inflation, MPC, RPI, RPIX, savings, sterling, underlying inflation, VAT
Posted in Bank of England, Consumer Price Index, Inflation, Monetary Policy Committee, savings, sterling | No Comments »
Tuesday, January 19th, 2010
CPI annual inflation which is targeted by the government, rose to 2.9% in December 2009 from 1.9% in November. This increase of 1.0% was the largest ever increase in the annual rate between two months.
Why was the increase so large, especially considering that the consensus amongst City economists was for a rise to 2.6%? The basic reason is not so much about what happened this year but what happened last year. We have to remember that we are looking at an increase based on the figures for the previous year, and what happened to prices in December 2008 was exceptional.
There were three main contributing reasons. Firstly, the standard rate of VAT was cut from 17.5% to 15.0% in December 2008. Secondly, there were sharp falls in the price of oil and thirdly, there were, unusually, pre-Christmas sales that month as a result of the economic downturn. Taken together, these events led to the CPI falling by 0.4% between November and December 2008. This means that the increase of 0.6% in the CPI between November and December 2009, together with the previous year’s fall, generated the 1.0% upturn in the index. In fact, a monthly increase of 0.6% in the CPI between two months is not in itself so untypical.
The recent trend can be seen in the graphic below.
 Source: ONS
The largest upward pressure on the CPI in December 2009 was from the transport sector, with fuels and lubricants rising in price by 0.2% on the month, compared with a fall of 6.2% a year ago. There was also upward pressure from clothing and footwear where prices fell between November and December 2009 but fell less than they between the same two months in 2008. However, overall, there was upward pressure on prices from 10 of the 12 divisions which the ONS measures and there were no significant downward pressures.
As far as RPI annual inflation is concerned this rose by 2.1% from 0.3% in November to 2.4% in December 2009. The last time there was a monthly increase of this magnitude was between June and July 1979. The RPI was affected by the same pressures as the CPI as shown above. But, in addition, it was affected by the housing sector. Here, mortgage interest rates which fell significantly between these months in 2008 actually rose in the same period of 2009.
RPIX inflation, which is the RPI excluding mortgage interest payments rose from 2.7% in November to 3.8% in December 2009. At the same time, core inflation, which excludes food, energy, tobacco and alcohol rose by 2.8% on an annualised basis, which again is the fastest growth rate since records began in January 1997.
What of the future? The Bank of England has forecast that the CPI will show a rise of about 2.6% over the first quarter of 2010 and once the change back up in the VAT rate has worked its way through, many economists believe the CPI will fall back. There is also a difference of opinion as to the length of the time lag for the previous falls in the value of sterling to work their way through into higher domestic prices, and if these have been underestimated, we may see more pressure on the CPI in the months ahead.
Finally, disposable incomes increased by 5.2% in the year to the third quarter of 2009, particularly due to the effect of lower mortgage payments. If this goes into spending rather than the running down of existing debt as has been happening, then again we could see a feed through into higher prices.
Tags: core inflation, CPI, disposable income, Inflation, RPI, RPIX, sterling
Posted in Consumer Expenditure, Consumer Price Index, Inflation | No Comments »
Tuesday, December 15th, 2009
The CPI annual inflation rate rose to 1.9% in November following a rise of 1.5% in October. This increase was faster than expected and was mainly due to changes in transport prices, with the largest effect coming from fuels and lubricants. In this category, prices rose by 2.8% between October and November this year but fell by a huge 8.3% twelve months earlier.
According to the ONS there were small upward pressures from clothing and footwear and household and household services, whilst the largest downward pressure came from food and non-alcoholic drinks.
This increase in CPI was the biggest increase since May 2009 and CPI is expected to rise above its 2% target rate in the New Year when VAT is returned to its 17.5% rate from the temporary 15% rate operating at the moment.
The latest trends can be seen in the figure below.
 Source: ONS
Also, in the year to November, RPI inflation was 0.3% compared with a rate of -0.8% in October. According to the ONS such a rise of 1.1% has not been seen since April 1990 when the monthly increase was from 8.1% to 9.4%. Apart from the factors which influenced changes in the CPI there was also upward pressure from housing, mainly from mortgage interest payments which rose this year after falling a year ago.
The RPIX inflation rate, which excludes mortgage interest payments, was 2.7% in November, up from 1.9% in October.
Tags: CPI, Inflation, RPI, RPIX, VAT
Posted in Consumer Price Index, Inflation | No Comments »
Tuesday, November 17th, 2009
The government’s target measure for inflation, CPI, was 1.5% in October, which was a rise of 0.4 percentage points, from the 1.1% recorded in September.
The main reason for the increase was within the transport sector and came from fuels and lubricants. Somewhat perversely, prices of fuels fell by 0.7% between September and October this year. But because they actually fell even more, by 6.1%, between the same two months a year ago, this led to an inflationary increase. There were also other inflationary increases within this category from the prices of second-hand cars and air transport, where fares increased by 1.5% this year.
There were also upward pressures on CPI from recreation and culture, food and non-alcoholic drinks and communication. The largest downward pressure came from miscellaneous goods and services, mainly banking services, due to reductions in overdraft charges and mortgage arrangement fees.
 Source: ONS
In the year to October the Retail Prices Index fell by 0.8% which compares with a fall of 1.4% in the previous month. This means an increase of 0.6% and there has not been a greater month increase since July-August 1990.The factors affecting the CPI also affected the RPI, although because of differing methods used to measure the price of new cars in the two indices, the RPI increased by more than the CPI. There was also an upward pressure from house depreciation as house prices are now increasing but were falling at this stage last year.
Also, RPIX inflation, which is RPI minus mortgage interest payments, was 1.9% in October, compared to 1.3% in September.
The latest comparison with the EU as a whole shows a September CPI inflation figure for the UK of 1.1% but an EU figure of 0.3%.
Last week, Mervyn King, governor of the Bank of England said in his quarterly Inflation Report that: “Inflation is likely to rise towards 3% next year as VAT returns to 17.5% and higher commodity prices feed through, before price increases again subside to 1%.”
Tags: CPI, Inflation, RPI, RPIX
Posted in Consumer Price Index, Inflation | No Comments »
Tuesday, October 13th, 2009
The Consumer Price Index (CPI) measure of annual inflation fell to 1.1% in September from 1.6% in August. This was its lowest level since September 2004. Given the remit to the Bank of England to keep inflation within 1% of the 2% target, this means that a further fall in inflation may well require the governor of the Bank to write a letter to the Chancellor explaining why inflation is outside the boundary set.
The extent of the fall was rather surprising but was mainly due to gas and electricity bills which were unchanged between August and September this year but had risen a year ago. There was also downward pressure on prices from food and non-alcoholic drinks which fell by 0.9% between August and September. Other downward effects came from restaurants and hotels and DVDs.
 Electricity and gas bills were the main influence on the fall in CPI
The biggest upward pressure on price was from transport, with the average price of petrol rising by 2.4p per litre, compared to a fall of 2.3p a year ago. There was also upward pressure from second hand car prices. If oil prices continue to rise there is a possibility that the CPI may rise in the months ahead, especially with VAT being pushed back up to 17.5% from its temporary 15% figure, in January.
In the year to September, RPI annual inflation fell by 1.4% compared with a 1.3% fall in August. This measure was also affected by the main changes in the CPI components, although a different method used to measure the price of new cars in the RPI resulted in a larger upward contribution.
The RPIX measure, which is RPI excluding mortgage interest rate, was 1.3% in September compared with 1.4% in August.
Compared to the eurozone UK CPI remains high. The latest flash estimate for the eurozone for September shows a figure of -0.3% compared to +1.1% in the UK.
Tags: CPI, Inflation, RPI, RPIX
Posted in Inflation | No Comments »
Tuesday, September 15th, 2009
The government’s target measure for inflation, the Consumer Prices Index (CPI) fell from 1.8% in July to 1.6% in August. This was its lowest level since February 2005. The Bank of England aims to keep this measure of inflation within one percentage point of a 2% target rate.
The largest downward pressure affecting the CPI rate came from housing and household services. However, the largest overall effect came from gas prices which were relatively stable since last month, but had risen significantly a year ago. A similar situation was also seen in electricity prices.
There was also a large downward pressure from food and non-alcoholic drinks, with prices falling at their fastest rate in a July-August period since 2000. This compares to a price rise of 1.4% a year ago.
The latest inflation figures can be seen in the graphic below.
 Annual Inflation Rates - 12 month percentage change. Source:ONS
The largest upward contribution to the CPI rate came from transport. This is because prices rose for fuel and lubricants between July and August, but fell during the same period last year at the fastest rate ever recorded for this period. The average price of petrol rose by 1.1 pence per litre between July and August this year, to reach 103.8 pence, compared with a fall of 5.5 pence over the same month last year.
The Retail Prices Index (RPI), which includes mortgage interest payments and housing costs, stayed in negative territory whilst rising slightly from -1.4% in July to -1.3% in August. The same factors affected both the CPI and the RPI but the one difference was the methods used to measure the price of new cars which resulted in a larger upward pressure in the RPI.
RPIX inflation, which is the RPI excluding mortgage interest payments, was 1.4% in August, reflecting a rise from 1.2% in July.
Although the main measure of inflation is falling in the UK we are still showing higher price rises than the rest of the EU. The latest comparable figures show a CPI in July of 1.8% in the UK as opposed to a provisional figure for the whole of the EU of only 0.2%.
But what can we expect over the coming months? Last week, Mervyn King, Governor of the Bank of England, told a Treasury Select Committee that inflation is likely to be volatile over the next six months. He forecast that inflation would fall further below the 2% target before rising above it. He said: “That volatility reflects base effects as well as the reversal of last year’s VAT cut.”
Tags: CPI, European Union, Inflation, RPI, RPIX
Posted in Bank of England, European Union, Inflation | No Comments »
Tuesday, June 16th, 2009
The inflation figures released this morning took many analysts by surprise. The general view was that CPI inflation would fall to 2.0%, which would put it bang on the Bank of England’s target. However, CPI inflation did fall in May but only from 2.3% down to 2.2%. This continues to put us well above the EU average, which currently stands at 1.2%.
The largest downward pressure on CPI inflation came from food and non-alcoholic drinks coupled with lower electricity prices. By contrast, the biggest upward pressure came from alcohol and tobacco, which reflected an increase in excise duty in this year’s Budget. There were also increases in the price of dvd’s and televisions.
The changing inflationary trend can be seen in the graphic below.
 Source: ONS
RPI inflation, which includes mortgage interest payments, was already in negative territory in April at -1.2%, but this rose slightly in May to -1.1%. This measure was mainly affected by the same pressures as the CPI figure, but there was a slight rise in average mortgage interest payments this year compared to a year ago. At least this figure did not move further into negative territory, which would have increased the risk of a deflationary episode.
RPIX inflation, which is the RPI minus mortgage interest payments, fell from 1.7% in April to 1.6% in May.
The markets responded positively to these figures as they were taken as indicating a possible robustness in the economy, and the pound rose against both the euro and the dollar.
General expectations are that CPI inflation will continue to fall in the months ahead although there is some concern about the unknown effects of quantitative easing on future inflation levels.
Tags: CPI, EU, Inflation, quantitative easing, RPI, RPIX
Posted in Bank of England, Deflation, Inflation, sterling | No Comments »
Wednesday, April 22nd, 2009
The Retail Prices Index (RPI) actually fell to -0.4% in March, compared with a figure of zero growth in February. This is the first time that this figure has been negative since 1960. There was a large downward pressure on the index from housing with the main contributions being house depreciation and mortgage interest payments, both of which are excluded from the Consumer Prices Index (CPI).
In fact the CPI was 2.9% in March which was down from the 3.2% in February but still well above the government’s target figure of 2.0%.
Changes in the three major measures of UK inflation can be seen in the graphic below.
 Source: ONS
Why did the CPI fall? The largest downward contribution was from housing and household services and was mainly due to gas bills which fell this year. There was also a major downward contribution from food and non-alcoholic beverages with the prices of vegetables in particular, falling in price by more than they did last year. A third downward effect came from transport costs with airfares falling. Also, even though petrol rose slightly between February and March this year, it had risen even faster at the same time last year and so contributed to the downward pressure on the CPI. The biggest upward influence in prices came from the games, toys and hobbies category.
The RPIX, which includes the all items RPI but excludes mortgage interest payments, was 2.2% in March, down from 2.5% in February.
Finally, the CPI, which is taken as an internationally comparable measure of inflation, showed that the UK inflation rate was 3.2% in February whilst the figure for the EU as a whole was 1.7%.
Tags: CPI, Deflation, Inflation, RPI, RPIX
Posted in Deflation, Inflation | No Comments »
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