NIESR reacts to the latest ONS CPI inflation statistics

17 Jan 2019 01:22 PM

According to figures released this morning by the ONS, consumer price index inflation fell by 0.2 percentage points to 2.1 per cent in the year to December 2018. Our new analysis of 137,925 goods and services prices included in the index this month suggests that inflationary pressures are stabilizing following a prolonged period above the Bank of England’s target.

Main points

• Underlying inflation rose by 0.1 percentage points to 0.7 per cent in the year to December 2018, 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 per cent and lowest in the South East at 0.4 per cent in the year to December 2018 (table 1).
• 17 per cent of goods and services prices changed in December, implying an average duration of prices of 5.9 months. This is the stickiest that prices have been in the month of December since 2007. 4.5 per cent of prices were reduced due to sales; 3.3 per cent fell for other reasons; and 9.1 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 December 2019.

Dr Jason Lennard, Senior Economist, yesterday said: 

“CPI inflation fell to 2.1 per cent in the year to December 2018. Based on our analysis of 135,000 goods and services in the basket, we found that inflationary pressures are stabilizing. Our measure of trimmed mean inflation, which excludes a fraction of the most extreme price changes, increased by 0.1 percentage points to 0.7 per cent in the year to December, having been on a disinflationary trend for more than a year. Given the historical relationship between current trimmed mean inflation and future CPI inflation, this level of core inflation is consistent with the Bank of England’s target over the coming twelve months.”

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 13 February.

 

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.

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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