WIREDGOV

According to figures released yesterday by the ONS, consumer price index inflation increased by 0.2 percentage points to 2.1 per cent in the year to April 2019. However, our new analysis of 131,181 locally-collected goods and services prices included in the index this month suggests a reduction in inflationary pressure.

Main points

• Underlying inflation decreased by 0.2 percentage points to 0.5 per cent in the year to April 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 London at 0.7 per cent and lowest in the West Midlands at 0.2 per cent in the year to April 2019 (table 1).
• 20 per cent of goods and services prices changed in April, implying an average duration of prices of 5 months. 5.3 per cent of prices were reduced due to sales, 5.3 per cent fell for other reasons and 9.4 per cent were increases (figure 2).
• The historical relationship between current trimmed mean inflation and future CPI inflation implies CPI inflation of 1.7 per cent in the year to April 2020.

Dr Jason Lennard, Senior Economist, yesterday said: 

“Headline CPI inflation increased by 0.2 percentage points to 2.1 per cent in the year to April 2019. Our analysis of more than 130,000 goods and services included in the basket, however, suggests a decline in inflationary pressure. Our measure of underlying inflation, which excludes extreme price movements, decreased by 0.2 percentage points. Price decreases outnumbered price increases by a margin not seen at this time of year since at least the 1990s. Underlying inflation fell in every region of the United Kingdom. This suggests that a few volatile items, such as air fares and energy, contributed to the increase this month. On this basis, we expect CPI inflation to settle just below the Bank of England’s target of 2 per cent in the coming year.”

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 19 June.

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

Table 1. Regional trimmed mean inflation (per cent)

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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