Prices and inflation
Inflation is the speed at which prices of goods and services rise or fall, so it tells us how far our money goes. However there are several different types of inflation, each of which is measured in a different way.
Consumer inflation is measured by taking a sample ‘shopping basket’ of around 700 goods and services each month from 150 random outlets across the UK, and monitoring how the total price of the basket changes. Many different measures of inflation are drawn from this data because different people want to measure different ‘baskets’ of goods.
The two key ones are:
Consumer price inflation (CPI) is the main method for measuring the prices of things private households consume (rather than businesses or government). It’s published every month and shows the overall change in the price of the basket as well as price changes for certain types of goods and services, such as clothing, food, transport and healthcare.
A modified version is called ‘CPIH’ which adds in the housing costs associated with owning a home.
Retail price inflation (RPI) is similar to CPI but also includes housing costs such as council tax, mortgage payments and insurance. However, this statistical measure has been found not to meet international standards.
Producer inflation, as opposed to consumer inflation, looks only at those goods and services bought and sold by UK manufacturers (sometimes called ‘factory gate prices’). This is used when calculating the value of imports and exports and also helps with working out price rises in the fuel used by companies. The producer price index is published in a separate monthly release by the Office for National Statistics.
A simple recent history going back as far as the 1980s is published by the ONS.
There’s no reliable, consistent measure of price inflation prior to 1947 (RPI dates from 1947 to the present day). However, there are earlier historical sources available and the Office for National Statistics compiles all of these in the Composite Price Index. This way, it’s actually possible to make a (very) rough estimate of inflation since 1750.
The Bank of England makes it easy. Their calculator lets you put in a price for any year since 1750 and it will tell you how much it’s worth in any given year.
HM Treasury’s GDP deflators let you convert a list of cash amounts over (more recent) time into ‘real terms’ – in other words, to adjust a sum for inflation. In most cases the deflators should only be used to measure public spending over time as a proportion of GDP. However, they’re not easy to use so on the Treasury’s website there are practical examples to help users.
The Office for Budget Responsibility puts together forecasts for how prices are going to change over the next few years. These figures have large margins of error for obvious reasons, and are only broadly indicative. The OBR publish the numbers as public finance forecasts.
Meanwhile, banks and academics all produce their own estimates. Helpfully, the Treasury collects all these forecasts in one monthly release.
The Office for National Statistics measures and records the average prices of everyday things such as milk, bread and eggs as part of ‘Consumer Price Indices’. As well, historical figures date as far back as the 1800s in the ONS’s prices database.
Every week the Department for Business, Energy and Industrial Strategy publish petrol and diesel prices – how much consumers pay at the pump, as well as how much fuel duty and VAT they pay as part of the price.
UK prices can be compared to the rest of Europe using the European Commission’s oil bulletin. More detailed figures, including historical data going back as far as the 1950s, is available from the associated monthly and annual releases.
While most energy prices are part of the retail prices index produced by the Office for National Statistics, the actual figures are collected every three months by the Department for Business, Energy and Industrial Strategy.
The size of household fuel bills is also covered in the Energy Prices release from the Department for Business, Energy and Industrial Strategy.