Watch the webinar
- Anna Leach, Deputy Chief Economist, CBI
- Mike Hardie, Head of Inflation Statistics, Office for National Statistics
- James Harding, Managing Editor and Partner, Tortoise Media (Chair)
In this session:
- We produce a range of Consumer Price statistics – most well-known of these is the Consumer Price Index - Bank of England inflation target and widely quotes in the media
- Also have CPIH - occupiers housing costs - most comprehensive measure of inflation, and a set of measures called the household costs indices which measures changing costs and prices by different household types.
- Latest figures show that in the year to March – CPI has seen a 7% price increase - highest rate since 1992.
- 12 divisions make up with CPI – things like transport, clothing, footwear, alcohol - 6 of these categories made highest rate of contribution to CPI for over 10 years. Recent rises are broad based and large.
- Two divisions of note for businesses and consumers:
- Large increases in transport in petrol and diesel prices - 1.60 a litre, diesel 1.70 a lite = highest on record.
- Also, in electricity and gas prices – have seen rises of 25% in the last year.
- On output prices / factory gate prices: in the year to March - price increases by 12%.
- On input prices: seeing large increases there – increased by 19.2%.
- Large price increases on the consumer side but also on the business side which will likely filter through this year.
- Future consumer prices are likely going to rise further but it’s difficult to pinpoint exactly how this will play out. If input prices go up for businesses, they have to either absorb the costs or pass them into consumers.
- Key drivers of inflation as it stands today: petrol / diesel / energy prices and the price cap - affects 22m people across the UK and will put some upward pressure on consumer price statistics.
- ONS are trying to provide a range of tools for individuals to track what this means for them. Includes the ONS’ Personal Inflation Calculator.
- In addition, the ONS will be producing a virtual shopping basket of 700 items and working with supermarkets to provide real-time insights on consumer spending. Also working with Rail Delivery Group to track transport in a similar way.
- You can read more on this on Mike’s recent blog: https://blog.ons.gov.uk/2022/04/27/big-data-on-cars-and-rail-fares-to-power-uk-inflation-measures/
- Input inflation rate have been experiencing for over a year now – first it was pandemic related due to supply chain disruption e.g., cost of air freight, shipping container capacity. And then the war in Ukraine has exacerbated this by adding significant increases to oil, metal, and food prices too. All driving substantial inflation rates.
- Input price inflation – strongest since 1997 and factory gate price is rising the fastest since the financial crisis.
- What’s the link between input price, factory gate price, CPI, and wage pressures? When businesses are facing these increasing costs, they have options: can look to change suppliers, invest in technology that is more productive, and over time you can impact those costs. Consumers also make choices – the proportion of money that consumers spend on different items change year to year – so there’s a lot that goes into how these play out in the economy overall.
- Because consumer inflation has risen to rapidly and will likely stay high, it will come off consumer spending and this is 2/3 of whole expenditure in the economy which has big impacts for the outlook for economic growth.
- Is it fair and reasonable for the UK Government in contract negotiations to expect productivity gains to apply in conjunction with output (factory gate) indices by way of application of a non-variable element in Variation of Price formulae / arrangements?
- Concern that inflation will be high for so long it will feed into wage inflation – this could lead to wage price spiral which gives monetary policymakers a great deal of concern
- At the same time, shock to commodity prices is so high that it is likely to dampen growth - IMF has reduced global growth level by a whole percentage point which is very significant.
- There are some opportunities for a step change in investment and growth as people look to improve efficiencies in face of material and labour costs and this should be reflected in government policy at the next Budget.