Inflation rises as the cost of living crisis deepens

by Shaun Richards

Yesterday we looked at the Bank of England and an apparently desperate attempt to stop house prices turning south. But also there was the issue of their failures on inflation which its Chief Economist seems to think can be corrected with some more measly 0.25% interest-rate rises. This morning’s inflation numbers release show he has yet another numbers problem.

The annual rate for RPIX, the all items RPI excluding mortgage interest payments (MIPs), is 11.8%, up from 11.2% last month.

So the annual rate of inflation using the measure the Bank of England used to target is up by 0.6% which makes his quarter point increases look even more like a peashooter. If we look at the full RPI measure the monthly move is around 0.7%.

The all items RPI is 337.1, up from 334.6 in April.

That is before we get to the difference between the annual rate at 11.8% and interest-rates at 1.25%.

Of course back in 2002 a decision was made to switch to an inflation measure which produces numbers less likely to frighten people and so it has proven again.

The Consumer Prices Index (CPI) rose by 9.1% in the 12 months to May 2022, up from 9.0% in April.

So a 2.7% gain from their perspective especially as those most involved managed to keep their Bank pensions linked to the RPI. It is a shame to see so many media sources producing this as “inflation” without any mention that it excludes owner-occupied housing costs.

Prices are continuing to rise at their fastest rate for 40 years as food, energy and fuel costs continue to climb.

UK inflation, the rate at which prices rise, edged up to 9.1% in the 12 months to May, from 9% in April, the Office for National Statistics (ONS) said. ( BBC )

So that is the opening of our story and there is of course another step planned.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 7.9% in the 12 months to May 2022, up from 7.8% in April.

Should this succeed they will have reduced the recorded inflation rate by 3.8% or as ELO would tell us.

I get a strange magic
Oh, what a strange magic
Oh, it’s a strange magic
Got a strange magic
Got a strange magic

It is a long-running game where CPIH was pushed by Paul Johnson in his 2015 Inflation Review. That has gone so badly ( I mean let’s face it they way it has “added” housing costs but reduced inflation is so transparent) with it being widely ignored that in desperation they plan to keep the RPI name but turn it into a CPIH clone.

We can take that further and let me show you. Of the three measures above only the RPI includes this ( via a depreciation measure which is presently some 10.3% of it). What is it doing?

UK average house prices increased by 12.4% over the year to April 2022, up from 9.7% in March 2022……On a seasonally adjusted basis, average house prices in the UK increased by 0.4% between March and April 2022, following an increase of 0.7% in the previous month.

This presents an obvious problem for producing a lower inflation number so for those of you who think they make the numbers up well for around 17% of CPIH they do. They assume that home owners pay rent, ignoring the fact that one of the points of owning your own home is that you do not pay rent! How does that go into the inflation numbers?

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Private rental prices paid by tenants in the UK rose by 2.8% in the 12 months to May 2022, up from 2.6% in the 12 months to April 2022.

You have just chopped 10% off inflation in this area via a numerical equivalent of gerrymandering. No-one in the real world can take advantage of this because if you buy you are either (lucky enough) that only the house price matters or paying a house price via a deposit and a mortgage over time for the rest.

Inflation Developments

This month has seen a further pick-up in the contribution of rising food prices to inflation. Even the CPIH measure is forced to admit there is something going on here.

Prices for food and non-alcoholic beverages rose by 8.7% in the year to May 2022…… Overall, prices rose by 1.5% between April and May 2022, compared with a fall of 0.3% between the same two months a year ago. The upward movement was broad-based, with upward contributions from 7 of the 11 detailed classes.

The RPI has its food category rising by 1.5% on the month with particular rises for eggs (5.7%), butter ( 4.2%) and coffee (3.8%).

A category that has pretty consistently been part of the move is the household goods category including furniture.

Prices for furniture, household equipment and maintenance rose by 11.0% in the year to May 2022. The resulting contribution of 0.60 percentage points was the highest from this division in the National Statistic series, which began in January 2006. ( CPIH based)

There was a 1.2% monthly move in the RPI series here led by furnishings at 1.5%.

There was another familiar feature which highlights that even without all the official meddling inflation measurement can be problematic.

The movement largely reflects price changes for computer games, particularly computer game downloads. Price movements for computer games can sometimes be large, in part depending on the composition of bestseller charts, so short-term movements need to be interpreted with caution.

There was a small downwards pull from this and the issue of sharp price changes due to fashion has affected clothing too over time. In fact the establishment have used it to attack the RPI rather than fix the problem.

Looking Ahead

At first it looks as though there will be some relief.

Monthly producer input prices rose by 2.1% and output prices by 1.6% in May 2022, down from 2.7% and 2.8%, respectively, in April 2022.

Whilst there is a slowing here, it is also true that in the broad sweep of things we are not seeing much of a change of beat when numbers of the order of 2% per month are being experienced. The annual numbers do show this I think.

Producer input prices rose by 22.1% in the year to May 2022, up from 20.9% in the year to April 2022; this is the highest the rate has been since records began in January 1985.

Producer output (factory gate) prices rose by 15.7% in the year to May 2022, up from 14.7% in the year to April 2022.


The story of 2022 is of sharply rising inflation and a cost of living crisis. I have long feared this day and its impact on people which is why I have spent so much time on inflation measurement. I am sure that at times people felt that a difference between say 2.1% and 2.6% was splitting hairs but 11.7% and 7.9% will get a very different response. Also there is another swerve in play which comes from saying you are better off if the rate of inflation falls when in fact it means you are getting worse off more slowly. At least those who have been producing “research” to show how inflation is “transitory” have gone quiet. Well mostly anyway


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