WIREDGOV

According to figures released yesterday by the ONS, consumer price index inflation fell by 0.3 percentage points to 1.8 per cent in the year to January 2019. Our new analysis of 138,516 goods and services prices included in the index this month suggests that the slowing of inflation cannot be explained by one-off factors such as the January sales but is the consequence of disinflationary pressure that has been building for more than a year.

Main points

• Underlying inflation was unchanged at  0.7 per cent in the year to January 2019, 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 Scotland at 0.9 per cent and lowest in the Yorkshire and the Humber at 0.4 per cent in the year to January 2019 (table 1).
• 21.5 per cent of goods and services prices changed in January, implying an average duration of prices of 4.6 months. 6.5 per cent of prices were reduced due to sales, 4.4 per cent fell for other reasons and 10.7 per cent were increases (figure 2).
• The historical relationship between current trimmed mean inflation and future CPI inflation implies CPI inflation of 1.9 per cent in the year to January 2020.

Dr Jason Lennard, Senior Economist, yesterday said: 

“CPI inflation fell to 1.8 per cent in the year to January 2019. Based on our analysis of 135,000 goods and services in the basket, we found that disinflationary pressure is widespread. The drop in the rate of inflation cannot be explained by one-off factors such as the January sales, as only 6.5 per cent of goods and services were listed at sales prices last month compared to 7.2 per cent last year. While our measure of trimmed mean inflation, which excludes a fraction of the most extreme price changes, was unchanged at 0.7 per cent in the year to January, it has now been falling or constant for 15 consecutive months. Not only is price growth weak across goods and services but also across the country as the dispersion of trimmed mean inflation at the regional level is the lowest on record.”

This analysis builds on the work presented in the National Institute Economic Review, which constructs a measure of trimmed mean inflation based on the goods and services prices that underlie the consumer price index.

Our next analysis of consumer prices will be published on 20 March.

Figure 1. Inflation: CPI and trimmed mean

Note: Our measure of trimmed mean inflation excludes 5 per cent of the highest and lowest price changes. The level of trimmed mean inflation is typically lower than CPI inflation due to differences in how the largest price changes are treated and to how the prices are weighted.

Figure 2. Decomposing price changes: Decreases due to sales, decreases due to other reasons and increases

Note: Our measure of trimmed mean inflation excludes 5 per cent of the highest and lowest price changes. The level of trimmed mean inflation is typically lower than CPI inflation due to differences in how the largest price changes are treated and to how the prices are weighted.

Notes for editors:

For further information and to arrange interviews, please contact the NIESR Press Office:
Paola Buonadonna on 020 7654 1923 / p.buonadonna@niesr.ac.uk

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