Cost of living statistics

Summary  

The main statistics on the cost of living are the consumer price inflation statistics published by the Office for National Statistics (ONS). Consumer price inflation is the rate at which the prices of goods and services bought by households rise and fall; it is estimated using consumer price indices. These use a fixed ‘basket’ of goods and services which is considered representative of the total expenditure of households. A price index compares prices between one time period and another and can be used to measure inflation in a number of ways. The most common is to look at how prices have changed over a year by comparing prices for the latest month with prices the same month a year ago.  

In the UK there are two main consumer price indices: the Consumer Prices Index (CPI) and the Consumer Prices Index including owner occupiers’ housing costs (CPIH).  

• Consumer Prices Index including owner occupiers’ housing costs (CPIH): The CPIH is ONS’ lead inflation index. It is the most comprehensive measure of inflation as it includes owner occupiers’ housing costs and Council Tax, which are excluded from the CPI.  
• Consumer Prices Index (CPI): The CPI is produced in line with international standards and is used in the government’s target for inflation. 

In addition, Retail Prices Index (RPI) continues to be published. Reflecting the shortcomings of the RPI it is considered a ‘legacy’ measure and is no longer an accredited official statistic. Use of the RPI is discouraged but it is still widely used in the private sector for setting prices in contracts and is built into some policies and price setting including previously issued government index linked gilts, Student Loan repayments and rail fare increases. 

In recent years, ONS has started publishing Household Costs Indices for UK household groups (HCIs), which are official statistics in development and may be revised due to improvements to the methods used to construct them over time. They provide insight into the inflationary experience of different household subgroups. The methods used to construct them mean that they are weighted based on estimates of the average household’s share of expenditure, rather than the total shares of expenditure that is used for the main consumer prices. This difference reflects that more-affluent households tend to spend more so their spending habits make a larger contribution to the consumer price inflation statistics.  

Another set of statistics which is relevant to discussions of the cost of living, as experienced by households, is the Average weekly earnings in Great Britain. These estimate the growth in earnings for employees before taxes and other deductions from pay.  

Other statistics that provide information on changes in prices are: 

The Price Index of Private Rents estimates changes in private rents for new and existing tenancies. The UK House Price Index estimates house price inflation; HM Land Registry publishes the full UK House Price Index report and monthly data.  

Producer Price Inflation and Producer Price Inflation including services estimate changes in the prices of goods bought and sold by UK manufacturers and changes in the prices received for services on a ‘Business to Business’ basis. 

The British Retail Consortium also publishes a Shop Price Index and Kantar publishes a grocery price index. 

What to look out for in statements about inflation and the cost of living 

Inflation is a measure of how prices of goods and services are changing in the UK. A decrease in the rate of inflation does not mean that prices are going down. A lower, but still positive, value means that prices are still going up but more slowly.   

Claims that ‘inflation is falling’ should not be confused with deflation or negative inflation. Deflation refers to the rate of decrease of prices. 

How people experience inflation will depend on their circumstances and spending habits. Low-income households tend to spend a bigger share of their income on necessities compared to higher-income households, which means they experience more inflation when prices of food and energy rise. 

Things to consider when hearing statements on this topic 

The UK’s main measures of inflation are the Consumer Price Index (CPI) and Consumer Price Index including owner occupiers’ housing costs (CPIH). The CPIH is the most comprehensive UK macro-economic measure of inflation (which means that it measures changes in how prices are changing at the whole economy level) whereas the CPI provides an internationally comparable picture. Although there are differences in the exact values of these indices the overall trends are similar.  

The Retail Prices Index was historically the UK’s main measure of inflation. It has substantial shortcomings and is no longer recommended for use.  

The ONS is introducing new data sources and methods into its consumer price statistics. These aim to improve the measures. The published consumer price statistics are not revised when new data sources and methods are introduced. The ONS has been publishing impact analysis articles which estimate how the price indices would have changed if the new sources and methods had been used in previous months to aid user understanding of the changes. The series in these impact analysis articles should not be used in place of the main published estimates.  

Household Costs Indices show how changing prices and costs affect different subgroups of the population. They differ from the Consumer Prices Index including owner occupiers’ housing costs (CPIH) and the Consumer Prices Index (CPI), which show how the prices of goods and services consumed by all households in the UK change over time. The headline estimates from the HCIs differ from the headline CPIH estimates mainly due to differences in how the spending of different products are represented (or weighted) or how the price of some products are estimated. More information on how the HCIs were developed and how they differ from other consumer prices indices is available in this article. 

Indicators such as the annual growth in earnings in real terms provide wider context about changes in the cost of living as they include factors relating to income. 

Wider support 

Our blog cost of living and understanding the data gaps provides further information on statistics around the cost of living and some of the key data gaps. 

The Institute for Fiscal Studies (IFS) is an independent economics research institute. The IFS publishes its own analysis and forecasts on a range of economic and fiscal topics. 

The National Institute of Economic and Social Research (NIESR) is an independent research institute that carries out research into the economic and social forces that affect people’s lives.