16th July 2013
The Consumer Prices Index (CPI) has grown by 2.9% in the year to June 2013, up from 2.7% in the year to May. The ONS says inflation rate is slightly above the figures seen over the previous 12 months but below the levels reached between the start of 2010 and spring 2012.
The ONS has now largely abandoned the retail price index citing its belief that it does not comply with international standards in terms of how it is calculated. The RPI rate stood at 3.3% for the year to June up from 3.1%. The index is still used in some cases for example upgrades to pensions and on some bonds so it remains to be seen if there are any major implications as the ONS increasingly disowns the measure.
A new formula RPIJ, which is being assessed and is not currently a ‘national statistic’ according to the ONS stood at 2.7% in June up from 2.5% in May.
The government statistics body says a rise in the price of motor fuels was the largest contributor to the rise in inflation. Average petrol prices rose by 1.0 pence a litre between May and June this year but they fell by 4.3 pence a litre between the same two months a year ago. Similarly diesel prices rose by 0.9 pence a litre this year but fell by 4.7 pence a year ago.
The ONS says there was also a large upward contribution from clothing & footwear. Prices usually fall between May and June as the summer sales season begins but this year the overall fall was not as steep as in 2012 when there were reports of sales starting earlier than is usual.
There were other, comparatively modest, upward contributions from miscellaneous goods & services (particularly personal care products) and housing, water, electricity, gas & other fuels.
The ONS says the most notable, but relatively modest, downward contributions came from food particularly vegetables and non-alcoholic drinks , recreation & culture (principally package holidays) and furniture, household equipment & maintenance.
Taking a longer term view, the three main contributors to the 12-month inflation rate in the last five years have been food & non-alcoholic beverages, housing, water, electricity, gas & other fuels and transport including motor fuels says the ONS accounting for over half of the 12-month inflation rate each month.
A new measure CPIH, which includes owner occupiers’ housing costs, grew by 2.7% in the year to June 2013, up from 2.5% in May.
The slower growth in CPIH than CPI is due principally to owner occupiers’ housing costs increasing more slowly than overall inflation for other consumer goods and services in the year to June.
Vince Smith-Hughes, retirement expert at Prudential said: “The rise in inflation will have a major impact on households throughout the UK. However, pensioners will be amongst the hardest hit since they spend higher proportions of their income on essentials like food and fuel, which are seeing the biggest price rises.
“The combined effects of falling retirement incomes and inflationary pressures make pensioners amongst the most financially vulnerable. This year, the average expected income for those in retirement hit a six-year low of £15,300, which is 18 per cent down on 2008.
“When making any financial plan for the future, it’s vital to take into account the impact of inflation, particularly if you’re choosing an annuity. It’s best to start by contacting a financial adviser or retirement specialist, who will be able to set out the best options for protecting income against inflation in retirement.”