Do we know where we are going in terms of inflation and house prices?

by Shaun Richards

The credit crunch has posed lots of questions for economic statistics but the Covid-19 epidemic is proving an even harsher episode. Let me illustrate with an example from my home country the UK this morning.

The all items CPI annual rate is 1.5%, down from 1.7% in February…….The all items CPI is 108.6, unchanged from last month.

So the March figures as we had been expecting exhibited signs of a a downwards trend. But in terms of an economic signal one of the features required is timeliness and through no fault of those compiling these numbers the world has changed in the meantime. But we do learn some things as we note this.

The CPI all goods index annual rate is 0.6%, down from 1.0% last month…..The CPI all goods index is 105.7, down from 105.8 in February.

The existing world economic slow down was providing disinflationary pressure for goods and we are also able to note that domestic inflationary pressure was higher.

The CPI all services index annual rate is 2.5%, unchanged from last month.

So if it is not too painful to use a football analogy at a time like this the inflation story was one of two halves.

Although as ever the picture is complex as I note this.

The all items RPI annual rate is 2.6%, up from 2.5% last month.

Not only has the RPI risen but the gap between it and CPI is back up to 1.1%. Of this some 0.4% relates to the housing market and the way that CPI has somehow managed to forget that owner occupied housing exists for around two decades now. Some episode of amnesia that! Also in a rather curious development the RPI had been lower due to different weighting of products ( partly due to CPI omitting owner-occupied housing) which pretty much washed out this month giving us a 0.3% shift on the month.

Of course the RPI is unpopular with the UK establishment because it gives higher numbers and in truth is much more trusted by the wider population for that reason.

But let me give you an irony for my work from a different release.

UK average house prices increased by 1.1% over the year to February 2020, down from 1.5% in January 2020.

I have argued house prices should be in consumer inflation measures as they are in the RPI albeit via a depreciation system. But we are about to see them fall and if we had trade going on I would be expecting some large falls. Apologies to the central bankers who read my blog if I have just made your heart race. Via this factor we could see the RPI go negative again like it did in 2009 although of course the mortgage rate cuts which also helped back then are pretty much maxxed out now.

If we switch to the widely ignored measure that HM Treasury is so desperately pushing we will see changes here as well.

Private rental prices paid by tenants in the UK rose by 1.4% in the 12 months to March 2020, unchanged since February 2020…..Private rental prices grew by 1.4% in England, 1.2% in Wales and by 0.6% in Scotland in the 12 months to March 2020…..London private rental prices rose by 1.2% in the 12 months to March 2020.

Rises in rents are from the past. I have been told of examples of rents being cut to keep tenants. Of course that is only anecdotal evidence but if we look at the timeliness issue at a time like this it is all we have. Returning to the conceptual issue the whole CPIH and Imputed Rents effort may yet implode as we mull this announcement.


The comparison of private rental measures between the Office for National Statistics and private sector data will be published in the Index of Private Housing Rental Prices bulletin released on 22 April 2020.

Oh well! As Fleetwood Mac would say.

Oil Prices

We can look at a clear disinflationary trend via the inflation data and to be fair our official statisticians are awake.

U.S. crude oil futures turned negative for the first time in history, falling to minus $37.63 a
barrel as traders sold heavily because of rapidly filling storage space at a key delivery point.
Brent crude, the international benchmark, also slumped, but that contract is not as weak
because more storage is available worldwide. The May U.S. WTI contract fell to settle at a
discount of $37.63 a barrel after touching an all-time low of -$40.32 a barrel. Brent was down
to $25.57 a barrel. ( 19 April 2020)

Actually Brent Crude futures for June are now US $18 so more is on its way than they thought but it is a fast moving situation. If we look at diesel prices we see that falls were already being noted as per litre prices had gone £1.33, £1.28 and £1.24 so far this year. As of Monday that was £1.16 which of course is well before the recent plunge in oil prices. This feeds in to the inflation data in two ways.

A 1 pence change on average in the cost of a litre of motor fuel contributes approximately 0.02 percentage points to the 1-month change in the CPIH.

Also in another way because the annual comparison will be affected by this.

When considering the price of petrol between March and April 2020, it may be useful to note
that the average price of petrol rose by 3.8 pence per litre between March and April 2019, to
stand at 124.1 pence per litre as measured in the CPIH.

If we switch to the producer price series we see that the Russo/Saudi oil price turf war was already having an impact.

The annual rate of inflation for materials and fuels purchased by manufacturers (input prices) fell by 2.9% in March 2020, down from negative 0.2% in February 2020. This is the lowest the rate has been since October 2019 and the sixth time in the last eight months that the rate has been negative.

The monthly rate for materials and fuels purchased was negative 3.6% in March 2020, down from negative 0.9% in February 2020. This is the lowest the rate has been since January 2015.

Roughly they will be recording about half the fall we are seeing now.


These times are providing lots of challenges for economic statistics. For example if we stay with oil above then it is welcome that consumers will see lower prices but it is also true we are using less of it so the weights are wrong ( too high). As to this next bit I hardly know where to start.

Air fares have shown variable movements in April which can depend on the position of Easter.

I could of course simply look at the skies over Battersea which are rather empty these days. I could go on by looking at the way foreign holidays are in the RPI and so on. There will of course be elements which are booming for example off-licence alcohol sales. DIY is booming if the tweet I received yesterday saying paint for garden fences had sold out is any guide. So you get the drift.

Returning to other issues the UK remains prone to inflation as this suggests.

“It’s right that retailers charge a fair price for fuel that reflects the price of the raw product, and in theory petrol prices could fall below £1 per litre if the lower wholesale costs were reflected at the pumps – but at the same time people are driving very few miles so they’re selling vastly lower quantities of petrol and diesel at the moment. This means many will be at pains to trim their prices any further.” ( RAC)

We learnt last week that some areas are seeing a fair bit of it as the new HDP ( Higher Demand Products) inflation measure recorded 4.4% in just 4 weeks.

So there are plenty of challenges. Let me give you an example from house prices where volumes will be so low can we calculate an index at all? Regular readers may recall I have pointed this out when wild swings have been recorded in Kensington and Chelsea but based on only 2 sales that month. What could go wrong?

Also we are in strange times. After all someone maybe have borrowed at negative interest-rates this week to buy oil at negative prices and then maybe lost money. If so let us hope they get some solace from some glam-rock from the 70s which is rather sweet.

Does anyone know the way?
Did we hear someone say
“We just haven’t got a clue what to do!”
Does anyone know the way?
There’s got to be a way
To Block Buster!