CPI Inflation 3.2% in October and RPI 6%

Published / Last Updated on 17/11/2021

The Office for National Statistics has this morning released UK inflation figures for October 2021.

The Consumer Prices Index (CPI) rose from 3.1% pa in September to 4.2% pa in October, another huge increase.  Likewise CPIH, which is consumer prices plus housing costs climbed to 3.8% pa from 2.9% pa in October.  The significant leap has been put down to increases in education, furniture, household goods, hotels, non-alcoholic drinks, restaurants and transport costs according to the Office for National Statistics (ONS).

Retail Prices Index (RPI) reached a staggering 6% pa in October from 4.9% pa in September.

Comment

The largest contribution to inflation increases comes from housing and household services, which increased the rate by 0.55 percentage points to October 2021. Prices increased by 1.2% on the month, compared with a fall of 0.5% in the same month a year ago. Electricity, gas and other fuels contributed 0.50 percentage points to the change in the rate, with owner occupiers’ housing costs providing a further 0.03 percentage points of the change and 0.02 percentage points from actual rents.

Electricity, gas and other fuel increases are primarily because of rising wholesale electricity and gas prices, which increased by 8.7% and 17.1% respectively on the month. These compare with price falls of 3.2% and 12.3% respectively on the month a year ago. Transport was another big hitter as petrol prices, travel costs and second hand car prices pushed up,

Whilst RPI is no longer an official statistic, we believe it is a better benchmark for inflation as it is a straight line average prices increase across a select baskets of goods and services i.e., the price of goods and services are simply added up and then divided by the number of items, whereas CPI is a geometric mean i.e. it is the sum of all prices and then the nth root of the total.  CPI is a weighted ‘mean’ average meaning larger priced items have more effect that smaller priced ones.  RPI means you are spending 6% in real time more this year than last year on exactly the same goods and services.

You know our thoughts, many central banks are unlikely to increase interest rates for some time and will talk tough but they want, indeed need inflation to build to devalue public sector covid debt over the coming years.

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