Inflation Falls Slightly To 10.1% From 10.5%

15th February 2023

The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 8.8% in the 12 months to January 2023, down from 9.2% in December 2022.

The largest upward contributions to the annual CPIH inflation rate came from housing and household services (mainly from electricity, gas, and other fuels), and food and non-alcoholic beverages.

On a monthly basis, CPIH fell by 0.4% in January 2023, but was little changed in January 2022.

The Consumer Prices Index (CPI) rose by 10.1% in the 12 months to January 2023, down from 10.5% in December 2022.

On a monthly basis, CPI fell by 0.6% in January 2023, compared with a fall of 0.1% in January 2022.

The largest downward contribution to the change in both the CPIH and CPI annual inflation rates between December 2022 and January 2023 came from transport (particularly passenger transport and motor fuels), and restaurants and hotels, with rising prices in alcoholic beverages and tobacco making the largest partially offsetting upward contribution to the change.

Core CPIH (excluding energy, food, alcohol and tobacco) fell to 5.3% in the 12 months to January 2023 from 5.8% in December 2022, the annual CPIH goods index eased slightly from 13.4% to 13.3% over the same period, while the annual CPIH services index fell from 5.8% to 5.2%.

The estimates for January 2023 are constructed using updated expenditure weights; this is the first weights update for 2023 and the second update will be used to construct estimates for the February 2023 dataset, published on 22 March 2023.

The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 8.8% in the 12 months to January 2023, down from 9.2% in December 2022 and from a peak of 9.6% in October 2022. Indicative modelled consumer price inflation estimates suggest that October saw the highest annual rate in over 40 years (the CPIH National Statistic series begins in January 2006). In more recent months however, the CPIH annual rate has fallen back to levels below the rate of 9.2% recorded just over 30 years earlier, between September and December 1990. The fall in the annual rate between December 2022 and January 2023 was a result of prices falling 0.4% on the month, whereas they were little changed a year earlier.

The Consumer Prices Index (CPI) rose by 10.1% in the 12 months to January 2023, down from 10.5% in December 2022 and from a peak of 11.1% in October 2022. Our indicative modelled estimates of consumer price inflation suggest that the peak in the CPI rate in October 2022 was the highest annual inflation rate since 1981 (the CPI National Statistic series begins in January 1997). The slowing in the CPI rate between December 2022 and January 2023 was a result of CPI prices falling 0.6% in the month to January 2023, compared with a smaller fall of 0.1% the year before.

The main drivers of the annual inflation rate for CPIH and CPI are the same where they are common to both measures. However, the owner occupiers' housing costs (OOH) component accounts for around 16% of the CPIH and is the main driver for differences between the CPIH and CPI inflation rates. This makes CPIH our most comprehensive measure of inflation, and it is covered in more detail in Section 4: Latest movements in CPIH inflation in this bulletin, while Section 5: Latest movements in CPI inflation provides commentary on the CPI. Section 3: Notable movements in prices covers both CPIH and CPI, though the figures reflect CPIH.

Notable movements in prices
The easing in the annual inflation rate in January 2023 mainly reflected price changes in the transport division, particularly for passenger transport and motor fuels. There were also downward effects from restaurants and hotels, with the largest, partially offsetting, upward effect coming from alcoholic beverages and tobacco.

Transport
The annual inflation rate for transport was 3.4% in January 2023, down for a seventh consecutive month from a peak of 15.2% in June 2022, and the lowest rate since February 2021. The main drivers behind the easing in the rate between December 2022 and January 2023 came from passenger transport services and motor fuels.

Within the transport category, the largest easing effect came from passenger transport services. Prices rose 7.6% in the year to January 2023, down from 18.3% in the year to December 2022. Annual rates fell across most passenger transport types, with the largest fall coming from passenger transport by air. Earlier in the year, annual inflation for passenger transport by air reached 40.3% in August 2022 and subsequently fell. However, in December 2022, the annual rate increased again from 24.3% to 44.1% (the largest recorded rate for this class since at least January 1989 when our constructed series begins) before easing to 18.4% in the year to January 2023. The impact of this large drop in the annual rate has been increased by the annual update of expenditure weights, with air fares accounting for 0.6% of the Consumer Prices Index including owner occupiers' housing costs (CPIH) basket in January 2023, compared with 0.2% a year earlier.

There was a similar effect in passenger transport by road, where annual inflation increased every month between May 2022 (3.5%) and October 2022 (8.2%). It then briefly dropped in November before reaching a peak of 11.3% in the year to December 2022. In the year to January 2023 the annual rate eased to 5.7%. This effect was driven largely by coach fares. The monthly inflation rate for coach fares increased 53.8% in December 2022 and then subsequently fell 45.7% in January 2023. However, there was also a downward effect from bus fares, which fell 3.8% in January 2023, compared with a small rise of 0.1% in the same month a year earlier. This was as a result of the £2.00 cap on single bus fares, which came into effect across England from 1 January 2023.

Overall, fuel prices rose by 7.7% in the year to January 2023, down from 11.5% in the year to December 2022. Average petrol prices fell 5.9 pence per litre (ppl) between December 2022 and January 2023 compared with a smaller monthly fall of 0.7ppl a year earlier. Diesel prices also contributed to the change in the rate, falling by 7.0ppl this year, compared with a smaller fall of 0.6ppl a year earlier. Average petrol and diesel prices stood at 149.4ppl and 172.1ppl in January 2023, and were last lower in February 2022 when petrol stood at 147.6ppl, and in March 2022 when diesel stood at 170.5ppl.

Restaurants and hotels
Restaurant and hotel prices also contributed to the easing in the CPIH annual inflation rate. Prices rose 10.8% in the year to January 2023, down from 11.4% in the year to December 2022 (which was the highest rate since the constructed historical estimate of 11.4% in September 1991, and which was last higher in August 1991, when it was 11.8%).

The effect came mainly from restaurant and cafe prices, which eased from 10.1% in the year to December 2022, to 9.4% in the year to January 2023. This was as a result of price falls between December 2022 and January 2023 (0.5% overall, compared with rises of 0.2% a year earlier), particularly for many on-sales of drinks.

There was also a smaller downward effect from accommodation services. Despite similar monthly price falls of 2.6% in January in both 2022 and 2023, the greater weight for accommodation services in 2023 means that the monthly fall in the current year has a greater influence on the change in the annual rate. This resulted in a downward movement between December and January.

Alcoholic beverages and tobacco
These downward movements were partially offset by alcohol and tobacco, where prices increased by 5.2% in the year to January 2023, up from 3.8% in December 2022. This was caused by monthly price rises across much of the alcohol and tobacco basket. Overall alcohol prices prices rose 4.6% in the month to January 2023 and tobacco prices rose 0.8% in the same period. This was compared with smaller monthly rises of 2.2% and 0.3% respectively a year earlier.

Read the full report HERE