What is CPI?

The Consumer Price Index (CPI) is the rate of change in inflation. Where over 700 goods and services (such as food, transportation, and medical care) are added to a basket from over 20,000 shops, each good is given a weight to signify its importance in the basket. CPI is a representation of an average basket from an average family. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.

Basically…

• If CPI > positive = inflation
• If CPI < negative = deflation

The changes in the CPI are used to assess price changes associated with the cost of living.

Why Does This Matter?

UK inflation has climbed to a new 32-year high which means increased energy costs, fuel bills and food prices are at their highest in decades. A record surge in fuel prices pushed inflation to 9% in April as consumers feel the impact of quantitative easing (increase in the money supply) and rising interest rates.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 7.8% in the 12 months to April 2022, up from 6.2% in March.

Moreover, the most significant upward contributions to the annual CPIH rate of inflation in April 2022 came from housing and household services. Over 2.76 percentage points, mainly from electricity, gas, other fuels and owner occupiers’ housing costs. As well as transport, 1.47 percentage points, principally from motor fuels and second-hand cars.

Every month, CPIH rose by 2.1% in April 2022, compared with an increase of 0.7% in April 2021.

Additionally, the largest upward contributions to the change within the CPIH 12-month rate between March and April 2022 came from housing and household services (1.27 percentage points). Restaurants and hotels (0.11 percentage points), recreation and culture (0.10 percentage points), with the most important partially offsetting downward contribution from clothing and footwear (0.09 percentage points).

The Consumer Prices Index (CPI) rose by 9.0% within the 12 months to April 2022, up from 7.0% in March.

Monthly, CPI rose by 2.5% in April 2022, compared with an increase of 0.6% in April 2021.

By Anshjeet Singh

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