NIESR reacts to the latest ONS CPI inflation released

18 Apr 2019 11:57 AM

According to figures released yesterday by the ONS, consumer price index inflation was unchanged at 1.9 per cent in the year to March 2019. Our new analysis of 135,615 goods and services prices included in the index this month suggests that inflationary pressure across goods, services and regions is low despite rising wages.

Main points

• Underlying inflation decreased by 0.1 percentage points to 0.7 per cent in the year to March 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 1.0 per cent and lowest in the South East at 0.5 per cent in the year to March 2019 (table 1).
• 18.5 per cent of goods and services prices changed in March, implying an average duration of prices of 5.4 months. 4.8 per cent of prices were reduced due to sales, 3.6 per cent fell for other reasons and 10.1 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 March 2020.

Dr Jason Lennard, Senior Economist, said: “CPI inflation was unchanged at 1.9 per cent in the year to March 2019. Based on our analysis of 135,000 goods and services in the basket, we found that inflationary pressure is low despite rising wages. Our measure of underlying inflation, which excludes extreme price movements, decreased by 0.1 percentage points. What may be contributing to lower than expected inflation is Brexit related uncertainty, as fewer firms changed their prices in March relative to previous years. At the regional level, there has been convergence, as the gap between regions with the fastest and slowest price growth has narrowed to the lowest level since at least 2010.”

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 22 May.

 

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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