Consumer Price Inflation, Uk: December 2021 - Inflation Highest In 30 Years

19th January 2022

The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 4.8% in the 12 months to December 2021, up from 4.6% in the 12 months to November.

The largest upward contributions to the December 2021 CPIH 12-month inflation rate came from housing and household services (1.31 percentage points) and transport (1.29 percentage points, principally from motor fuels and second-hand cars).

On a monthly basis, CPIH increased by 0.5% in December 2021, compared with a rise of 0.2% in December 2020.

The largest upward contributions to the change in the CPIH 12-month inflation rate between November and December 2021 came from food and non-alcoholic beverages, restaurants and hotels, furniture and household goods, and clothing and footwear.

These were partially offset by large downward contributions to change from transport, and recreation and culture.

The Consumer Prices Index (CPI) rose by 5.4% in the 12 months to December 2021, up from 5.1% in November.

On a monthly basis, CPI increased by 0.5% in December 2021, compared with a rise of 0.3% in December 2020.

The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 4.8% in the 12 months to December 2021, up from 4.6% to November. The 12-month inflation rate was the highest since September 2008, when it also stood at 4.8%. This is the highest recorded 12-month inflation rate in the National Statistic data series, which begins in January 2006, and the highest rate since CPIH stood at 5.1% in May 1992 in the historical modelled estimates.

Inflation rates are currently influenced by the effects of the coronavirus (COVID-19) lockdowns in 2020. The Office for National Statistics' (ONS) blog Beware Base Effects describes how relatively low prices for some items during those periods influence current inflation rates.

The Consumer Prices Index (CPI) rose by 5.4% in the 12 months to December 2021, up from 5.1% to November. This is the highest CPI 12-month inflation rate in the National Statistic data series, which began in January 1997, and it was last higher in the historical modelled data series in March 1992, when it stood at 7.1%.

On a monthly basis, CPIH rose by 0.5% in December 2021, compared with a rise of 0.2% in the same month a year earlier. Price rises in transport, food and non-alcoholic beverages, furniture and household goods, and housing and household services were the largest contributors to the monthly rate in December 2021. The main partially offsetting downward contribution to the monthly rate came from alcohol and tobacco, which reduced it by 0.03 percentage points. More information on contributions to change is provided in Section 4.

In December 2021, the CPI rose by 0.5% from the previous month, compared with a rise of 0.3% in the same month the previous year.

Given that the owner occupiers' housing costs (OOH) component accounts for around 19% of the CPIH, it is the main driver for differences between the CPIH and CPI inflation rates.

Housing and household services
The contribution from housing and household services increased from 1.28 percentage points in November to 1.31 percentage points in December 2021, which is the largest contribution from any division this month, and is the largest contribution from this division since early 2009.

The contributions in both months were significantly above those from April to September 2021. This was a result of price rises for gas and electricity following the increase in the cap on energy prices, which changed on 1 October 2021. The Office of Gas and Electricity Markets (Ofgem) introduced energy price caps to limit the price energy suppliers can charge the estimated 15 million households that either use a prepayment meter or are on the "standard variable" energy (or default) tariff. As the energy regulator, Ofgem updates the energy price caps twice a year, in April and October, to ensure that they reflect changes in the cost of supplying energy.

In April 2020, the energy price cap had been reduced causing a downward contribution from electricity, gas and other fuels of 0.20 percentage points. This fall was reversed in April 2021 with rises in gas and electricity prices. On 6 August 2021, Ofgem published the cap levels for the period from 1 October 2021 to 31 March 2022. They reported that the price cap had increased by 12% since April 2021 because of "a rise of over 50% in energy costs over the last six months with gas prices hitting a record high as the world emerges from lockdown".

Combined with the April 2021 increases, these latest rises resulted in 12-month inflation rates of 18.8% for electricity and 28.1% for gas in October 2021. These rates were unchanged in November and December, and were the highest annual rates for these classes since early 2009. Altogether, electricity, gas and other fuels contributed 0.59 percentage points to the annual rate.

Elsewhere within housing and household services, owner occupiers' housing costs rose 2.2% on the year to December 2021, resulting in a contribution of 0.41 percentage points to the CPIH annual inflation rate, and actual rentals rose 2.0% on the year resulting in a contribution of 0.15 percentage points.

Transport
The contribution from transport has shown more variation than any other group over the last two years. It has ranged from a downward contribution of 0.20 percentage points in May 2020 during the first coronavirus (COVID-19) lockdown to an upward contribution of 1.34 percentage points in November 2021. In December 2021, the contribution eased slightly to 1.29 percentage points.

Within transport, the movements have mainly been caused by changes in the price of motor fuels. Motor fuels made a downward contribution to the 12-month rate between March 2020 and February 2021, before the contribution turned positive in March 2021 and subsequently increased to 0.58 percentage points in November 2021. In December 2021, the contribution fell back slightly to 0.55 percentage points.

Average petrol prices stood at 145.8 pence per litre in December 2021, compared with 114.1 pence per litre a year earlier. The December 2021 figure is unchanged from November and is the highest recorded average price. A year earlier, in December 2020, autumn movement restrictions eased in the run-up to Christmas and average petrol prices began to pick up once again, increasing 1.5 pence per litre on the month.

The contribution from second-hand cars has also changed significantly since the beginning of 2020, rising from a downward effect of 0.07 percentage points in January 2020 to an upward pull of 0.15 percentage points in October 2020. With the onset of the coronavirus pandemic, there were reports of increased demand as people sought alternatives to public transport. From October 2020, the contribution to the 12-month rate gradually fell back to an upward 0.01 percentage points in April 2021. It then rose again to 0.34 percentage points in December 2021, the largest contribution from second-hand cars since the start of the National Statistic data series in January 2006. Cumulatively, used car prices have grown 28.0% since January 2021. By comparison they grew 7.3% over the same period in the previous year.

These latest movements come amidst reports of increased demand as dealers opened following the national lockdown at the start of 2021, together with a global semiconductor shortage affecting the production of new cars and resulting in consumers turning to the used car market. Additionally, there are reportedly concerns in the trade about the supply of second-hand cars because of a variety of factors. These include fewer one-year-old cars coming to the market now because of a fall in new car registrations a year earlier, and the extensions of lease contracts and fewer part exchanges caused again by delays in new-car supply. The recent Prices Economic Analysis compares the growth in second-hand car prices in the UK with the euro area and United States.

Food and non-alcoholic beverages
The largest upward contribution to the change in the CPIH 12-month inflation rate came from food and non-alcoholic beverages, which increased the rate by 0.14 percentage points between November and December 2021. This was the largest contribution to change from this division since July 2008, when it contributed 0.22 percentage points to the increase in CPIH from 3.7% to 4.2%.

The contribution to the change in the December 2021 annual rate was driven by price rises of 1.3% on the month, compared with a fall of 0.4% a year earlier. It was the highest rate of monthly growth in December for this group since 2012 when prices also increased by 1.3%. This effect was predominantly driven by food, with eight of the nine food groups increasing the headline rate. This was because of price rises in seven groups, and a further upward contribution to change from fish, where price falls in December 2020 were larger than they were in December 2021. There was a small, partially offsetting downward contribution to change from non-alcoholic beverages.

Amongst the food groups, the largest contributions came from bread and cereals, meat, and vegetables, potatoes and other tubers, which each contributed 0.04 percentage points to the increase in the CPIH 12-month inflation rate.

Restaurants and hotels
Price changes for restaurants and hotels increased the CPIH 12-month inflation rate by 0.07 percentage points between November and December 2021. This was driven by accommodation services, which contributed 0.11 percentage points to the change, and was partially offset by catering services, which reduced the change in the annual rate by 0.04 percentage points.

Accommodation services fell by less on the month to December 2021 than they did a year earlier: 2.2% compared with 8.3% in the previous year. By contrast, prices in catering services rose by less on the month than they did a year earlier: 0.4% compared with 0.8% in the previous year. It should be noted, however, that many items within this division were unavailable in November 2020 because of lockdowns that were in place across much of the UK. Unavailable items were imputed as described in Coronavirus and the effects on UK prices. This means that monthly movements from December in the previous year reflect the growth from an imputed base, and should therefore be interpreted with caution.

Furniture and household goods
Rising prices for furniture and household goods led to an increase of 0.06 percentage points in the overall CPIH 12-month inflation rate in December 2021. Prices rose 2.0% on the month, compared with a smaller rise of 0.9% a year earlier.

The effect was spread fairly evenly across the spending groups within this division, most of which contributed 0.01 percentage points to the change, the exceptions being a slightly larger contribution to the change of 0.02 percentage points from major household appliances, including fittings and repairs, and a negligible contribution to change from tools and equipment for house and garden. On average, prices in all groups rose on the month.

On the whole the annual rate for this division has been increasing since January 2021, when it stood at 1.0%. It currently stands at 7.4%, which is the highest recorded rate for this division since the start of the National Statistic data series in January 2006 and also since the start of the historical modelled data series in January 1989.

Clothing and footwear
Clothing and footwear also provided a large upward contribution (of 0.04 percentage points) to the change in the headline rate. Prices rose in December 2021 by 0.7%, which was larger than the rise in the previous year of 0.1%.

Prices usually fall between November and December (Figure 3); prior to the coronavirus (COVID-19) pandemic, between 2014 and 2019, the average monthly movement in December was a fall of 1.2%. Therefore, both the 2020 and 2021 movements are unusual and appear to have been affected by the pandemic. In both November and December 2020, there was increased discounting compared with other years. Although November saw tougher national restrictions introduced in England, with a new tiered system of COVID-19 protection levels in Scotland, non-essential travel discouraged in Wales following the firebreak lockdown and Northern Ireland's circuit-breaker lockdown in force affecting various services, in December much of the UK saw a lightening of restrictions in the run-up to Christmas.

The upward contribution mainly came from women's garments (0.02 percentage points) with garments and footwear for children, and other articles of clothing also increasing the annual rate (0.01 percentage points each), while clothing accessories had a small partially offsetting downward effect on the change (0.01 percentage points).

Transport
The largest, partially offsetting downward contribution to the change in the CPIH 12-month inflation rate came from transport, which decreased the rate by 0.05 percentage points between November and December 2021. Despite providing a large contribution to the annual rate itself this month, that contribution fell from 1.34 percentage points in November to 1.29 percentage points in December.

Within transport, transport services reduced the overall CPIH annual rate by 0.06 percentage points, with the effect spread between passenger transport by sea and inland waterway (negative 0.03 percentage points), by road (negative 0.02 percentage points), and by rail (negative 0.01 percentage points). While these effects were all driven by larger price rises a year earlier, many items within transport services were unavailable in November's lockdowns in 2020, and were therefore imputed in line with the procedures described in Coronavirus and the effects on UK prices. This means that the monthly movements in December 2020 are from an imputed base and should be interpreted with some caution.

Motor fuels reduced the CPIH annual rate by a further 0.03 percentage points. The prices of motor fuels were little changed on the month in 2021, but increased by 1.3% in the previous year as the November lockdowns ended. This follows the largest monthly rise on record (since 1990) last month, when the price of petrol rose by 7.2 pence per litre.

Partially offsetting effects came from maintenance and repairs, and second-hand cars. Maintenance and repairs increased the CPIH annual rate by 0.03 percentage points between November and December 2021. This was a result of roadside recovery sales in the previous year as well as increasing prices for car servicing. Although growth in second-hand car prices stalled this month, price falls of 1.1% in the same month a year earlier have resulted in a partially offsetting upward contribution of 0.02 percentage points to the change in the CPIH 12-month rate from this group.

Recreation and culture
There was a further, partially offsetting downward contribution to change between November and December 2021 from recreation and culture, of 0.04 percentage points. The movement came mainly from audio-visual equipment and related products (negative 0.03 percentage points), and recreational and cultural services (negative 0.03 percentage points) with other recreational items, gardens and pets offsetting this movement slightly (0.02 percentage points). However, some of the individual items comprising the recreational and cultural services component were unavailable in November 2020 and the indices for these items were imputed as described in Coronavirus and the effects on UK prices. This means that the current contribution to change has to be interpreted with a degree of caution. Within audio-visual equipment and related products, there were offsetting effects from a range of items. Price movements for some of these items can at times be large depending on the composition of bestseller charts.

Unavailable items
For items that were unavailable in line with government guidelines in the early part of 2021, there were no January base prices. As these items became available again, base prices were imputed in line with the procedures described in Coronavirus (COVID-19) and Consumer Price Inflation weights and prices: 2021.

For the first month in which they became available again, item indices were imputed using either the monthly movement in the all-available-items index or, for a smaller number of seasonal items, the annual movement in the all-available-items index. The aim was that the indices for returning items had a negligible impact on the all-items inflation rate in the first month of return, reflecting the fact that these services were available only as price levels and did not have price growth associated with them (relative to the January base). Collected prices then started to influence the index in the following month.

Restrictions began easing from 12 April 2021 and, since August 2021, there are no items across the CPIH basket of goods and services that are unavailable to consumers.

However, the 12-month rate depends on prices collected in both 2021 and 2020. In 2020, the tougher national restrictions introduced in England the previous month were replaced by a tiered system of restrictions in December, while Northern Ireland’s circuit-breaker lockdown affected various services at the end of November and beginning of December, a new tiered system of COVID-19 protection levels was introduced in Scotland in November, and non-essential travel in Wales was discouraged following the firebreak lockdown, which ended in November. This led to the number of CPIH items that were unavailable to UK consumers falling from 72 in November to 9 in December 2020. The changes to the list across months, are shown in Table 58 in the Consumer price inflation dataset.

A number of items affected by lockdown restrictions towards the end of 2020 have made a contribution to the change in the CPIH 12-month inflation rate between November and December 2021. These items were imputed in November or December 2020 to reflect that they were unavailable for consumption (for more information please refer to the article Coronavirus and the effects on UK prices).

The largest upward contribution is from hotels, one night stay, which increased the annual rate by 0.10 percentage points. The largest downward contribution came from sea fares, which, together with coach fares and international rail fares, decreased the annual rate by 0.05 percentage points between November and December 2021. In aggregate, the upward contributions to change from affected items were 0.14 percentage points and the downward contributions to change were also 0.14 percentage points. Therefore the overall effect on the change in the all-items CPIH 12-month inflation rate was negligible. The impact on CPI was also small, with the change from 5.1% in November to 5.4% in December 2021 being similarly unaffected by unavailable items.

Read the full report with more links to further data at
https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/december2021