Sam Bromley
Adam French
The consumer prices index, or CPI, hit 2% in the year to June 2024, according to the Office for National Statistics (ONS). This rate is the same as in May 2024, remaining at the Bank of England’s target rate.
While inflation is now at target, price increases in some areas – such as health, recreation, and dining out – remain high.
The CPI measures the change in prices paid by UK consumers for everyday goods and services, like groceries, fuel and clothing. It compares the prices of goods and services now with how much they cost a year ago. It is calculated by the Office for National Statistics (ONS) and an updated figure is released each month.
What is the current CPI rate?
The ONS report for June 2024 reveals that CPI in the UK was unchanged at 2%, which is the Bank of England’s target level of inflation. Before May’s rate, the last time that inflation hit the target was July 2021. In June 2024:
- Hotel prices rose sharply compared with last year, with a monthly rise of 8.8% – the rate was 1.7% a year previously.
- On the other hand, clothing and footwear prices fell by 1.2% on a monthly basis, whereas they rose by 0.2% this time last year.
- Food price growth continued to ease, with prices rising by 1.5% in the year to June 2024 – down from the annual rate in May of 1.7%.
- The annual rate increased in the transport category – prices rose 0.7% in the year to June, compared with 0.3% in the 12 months to May. Second hand cars were the main contributor to this rise, because prices fell at a slower rate on a monthly basis than this time last year.
- Core CPI – all items minus food, energy, alcohol and tobacco – rose by 3.5% in the 12 months to June 2024, which is the same as May’s rate.
CPI rates history
| Month | Annual CPI rate |
|---|---|
| June 2023 | 7.9% |
| July 2023 | 6.8% |
| August 2023 | 6.7% |
| September 2023 | 6.7% |
| October 2023 | 4.6% |
| November 2023 | 3.9% |
| December 2023 | 4.0% |
| January 2024 | 4.0% |
| February 2024 | 3.4% |
| March 2024 | 3.2% |
| April 2024 | 2.3% |
| May 2024 | 2.0% |
| June 2024 | 2.0% |
What is the UK target inflation rate?
It’s down to the Bank of England to keep inflation stable – the target inflation rate set by the government is 2%. The Bank of England attempts to influence inflation through monetary policy, including how much it costs to borrow by setting interest rates.
With inflation now at target, experts are still unsure if the Bank will cut the base rate of interest in August.
Since the end of 2023, inflation has gradually been falling back to the Bank of England’s target of 2%, with May 2024’s figure hitting the Bank of England’s target for the first time since July 2021.
This is good news after inflation had increased sharply throughout 2021 and 2022 following the end of coronavirus restrictions and the war in Ukraine. As the economy reopened following lockdowns, shifts in consumer demand and supply disruptions for certain goods (such as cars) all contributed to a rise in inflation, increasing the cost of living.
Then the war in Ukraine tightened the supply of oil, gas and grain, contributing to an increase in energy prices (and inflation) throughout 2022.
What is in the CPI ‘basket’?
The goods and services that the CPI measures are often referred to collectively as the ‘shopping basket’. This changes annually to reflect consumers’ behaviour and spending patterns.
There are more than 700 goods and services in the basket. Items include:
- furniture, furnishings and carpets
- alcoholic drinks
- clothing
- food
- electricity, gas and other fuels
In those broad segments are more specific categories, such as “milk, cheese and eggs” under food.
And then there are actual items within specific categories, for example “non-dairy milk drinks and yoghurts” under “milk, cheese and eggs”.
Examples of items that were added in 2024 include “vinyl music”, reflecting the fact that more people are buying records, and “air fryers”, because these have become more popular in recent years.
Examples of items that were removed in 2024 include “sofa beds”, reflecting the fact that pull-out beds have potentially become more popular, and “hand hygiene gel”, because demand has dropped since the coronavirus pandemic.
The difference between CPI and CPIH
The CPI is just one of a few indices used in the UK to measure inflation. The Consumer Prices Index including owner occupiers’ housing costs (CPIH) is the headline measure used by the ONS.
The CPIH is almost the same as the CPI, but it also measures the change in the cost of owning, maintaining and living in your home, including council tax. Because it includes these costs, the ONS calls it the ‘most comprehensive measure of inflation’.
However, it doesn’t include mortgage payments – instead, the ONS measures how much it would cost homeowners to rent their homes. This is called ‘rental equivalence’.
The CPIH rose by 2.8% in the 12 months to June 2024, the same rate as in May.
The difference between CPI and RPI
RPI refers to the Retail Prices Index, which is the longest-standing measure of inflation in the UK.
It broadly measures the same goods and services as the CPI, but also includes mortgage interest payments. House prices and interest rates therefore affect the RPI.
While the CPIH includes the cost of owning, maintaining and living in your home, it doesn’t include mortgage interest payments as the RPI does.
There’s another index derived from the RPI called the RPIX, which excludes mortgage interest payments. The RPIX was the UK’s lead inflation index until 2003, when it was replaced by the CPI.
The RPI and the CPI are calculated differently, using different methods of calculating average prices, as well as different formulae.
The ONS believes that the RPI isn’t a great statistic, because it is likely to considerably overstate or at times understate inflation, and it discourages its use.
However, it still calculates and publishes the RPI monthly, because it’s used in long-term contracts and index-linked gilts. The government is planning to change the way that the RPI is calculated, bringing it in line with the CPIH, but this won’t happen before 2030.
The RPI rose by 2.9% in the 12 months to June 2024, down from 3% in May.
Some consumer costs are still linked to RPI inflation
While the ONS discourages its use, and the UK’s national statistician, Professor Sir Ian Diamond, has called it ‘not fit for purpose’, some elements of the UK economy are still linked to RPI inflation.
Items that bring in money for the government tend to be linked to the RPI figure, which is usually higher than the CPI figure. Consumer costs that increase in line with the RPI include car tax, tobacco duty, alcohol duty and interest on student loans. Some mobile phone tariffs and train tickets are linked to the RPI figure, too.
On the other hand, government spending tends to be linked to the lower CPI figure. This includes the state pension, universal credit and jobseekers’ allowance.
How is CPI used?
As mentioned above, the government uses CPI for the Bank of England’s target inflation rate. It’s also used when it reviews and uprates certain state benefits and tax thresholds.
The ONS also monitors wage growth in relation to the CPI and CPIH. As high inflation means that consumers have less purchasing power, the ONS measures how much wages have actually increased when taking the level of inflation into account.
» MORE: What can you do about high UK inflation?
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