CPI

The Consumer Prices Index (CPI) is the UK inflation measure from the Office for National Statistics (ONS, the UK statistics agency). It tracks a fixed basket of about 700 representative items chosen to mirror household spending. Prices come from 141 locations with over 100000 quotes each month plus central collection without field work.

The index covers household spending in 12 COICOP divisions across the UK, excluding the Channel Islands and the Isle of Man. It includes private households, foreign visitors and residents of communal establishments, while spending abroad stays outside. Unlike CPIH (CPI with housing costs, the ONS main gauge), CPI excludes owner housing costs such as mortgage interest and depreciation.

Policy reads the release against the 2% government target for annual inflation. If inflation stands outside 1% to 3%, the Governor must publish an open letter explaining the gap and the plan to return it to target. The government sets the target and reviews it at each Budget, so reading centres on distance from 2% and direction of change.

Prices reflect one working week near the middle of each month, called index day, using the same routine each month for consistency. Petrol prices are averaged across the month from weekly collection, while fruit and vegetables get a second count. Some services rotate on a staggered timetable and carry forward between collections, with collection dates never published in advance.

The bulletin appears in the morning after the reference month on pre-announced dates. Each release shows CPIH, CPI and RPI with annual and monthly rates plus drivers and contributions that sum to the headline rate. Markets read the annual change and the monthly change against the 2% target ahead of the coming policy decision.

The standard policy is no revision when methods improve, because the index supports indexation, with revision only in rare cases in the public interest. Errors above 0.1 percentage points on a headline annual rate trigger a public correction notice on the release.

CPI moves when household costs shift across its 12 divisions, weighted by spending shares. Contributions from each division sum to the headline annual and monthly rates.

• Food and non-alcoholic beverages: everyday groceries, often the largest driver of the annual rate.
• Alcoholic beverages and tobacco: alcohol plus tobacco, where duty moves can shift prices.
• Housing, water, electricity, gas and other fuels: actual rents plus utility and fuel bills; CPI excludes owner housing costs.
• Transport with communication: vehicle purchases, fuel and running costs, fares including airfares, plus telecom equipment and services.
• Recreation, culture, restaurants and hotels: leisure goods, holidays, cultural services, meals out and overnight stays.
• Other divisions: clothing and footwear, furniture and household goods, health, education, personal care, insurance and financial charges.

• Fix the basket: about 700 items mirror household spending and stay fixed for the year, reviewed each year.
• Collect prices: teams gather over 100000 quotes in 141 locations around index day plus head-office items, matching identical varieties and flagging sales or substitutions.
• Build elementary indices: with no lower weights, use the Jevons index (geometric mean of price changes). The Dutot index (ratio of average prices) covers some groups, while Carli (simple average of changes) is banned for upward drift.
• Aggregate upward: item indices combine as spending-weighted averages into classes, groups, divisions and all items, a Lowe-type fixed-basket method. For example, items at 103.3 (weight 0.4) and 101.3 (weight 0.6) give 102.1. Three quotes at 1.00, 1.10 and 1.20 moving to 1.05, 1.10 and 1.26 give an item index near 103.3.
• Chain-link twice yearly: weights refresh each year and the series chain-links onto the published reference series.
• Publish rates: monthly and annual changes come from unrounded indices, rounded to one decimal place, with no seasonal adjustment to avoid revisions. For example, (130.0 - 124.8) / 124.8 x 100 is about 4.2%.