Inflation Climbs Again To 11.9% In October To A 41 Year High - Annual 65.7% For Electricity And 128.9% For Gas

16th November 2022

Consumer Prices Index including owner occupiers' housing costs (CPIH) annual inflation was 10.5% for low-income households (those in the second income decile) and 9.1% for high-income households (those in the ninth income decile) in the year to October 2022, compared with an all-households rate of 9.6%.

Consumer Prices Index (CPI) annual inflation was 11.9% for low-income households (those in the second income decile) and 10.5% for high-income households (those in the ninth income decile) in the year to October 2022, compared with an all-households rate of 11.1%.

Rising energy and food costs have more bearing on the inflation rate experienced by low-income households, as a greater proportion of their expenditure is spent on them compared with high-income households.

CPIH annual inflation for subsidised renters was 12.1%, which was higher than for owner occupiers (9.4%) and private renters (9.1%) in October 2022; these are the largest differences since the series began in January 2006.

CPI annual inflation for subsidised renters was 12.2% in October 2022, which was higher than for owner occupiers (11.5%) and private renters (9.1%).

Higher contributions from energy, and food and non-alcoholic beverages for subsidised renters led to the differences between tenure types in October 2022.

Energy and food prices
The differences in the contributions can be explained by the recent trends seen in energy and food prices. Sharp increases in global wholesale gas prices have pushed up energy prices in the UK, with 12-month inflation rates for October of 65.7% for electricity and 128.9% for gas. This follows an increase in the Office of Gas and Electricity Market (Ofgem) cap on energy prices in October 2021 and April 2022. In October 2022, the Energy Price Guarantee (EPG) was introduced meaning for the typical household, energy bills would rise to an average of £2,500 a year. This has limited the extent that inflation would have risen without the policy intervention (with bills otherwise being set to rise £3,459 for the average household according to Ofgem's Press release, 26 August 2022). Higher energy prices accounted for around positive 0.91 percentage points of the difference between low- and high-income households' inflation rates in April 2022, and positive 1.21 percentage points of the difference in October 2022.

Food and non-alcoholic beverages accounted for around positive 0.56 percentage points of the difference between the second and ninth income decile in October 2022. This contribution to the difference has more than doubled since November 2021. Global food prices have risen since Russia's invasion of Ukraine in February 2022. This has contributed to global commodity price increases and alongside supply chain disruption, food producers face increased input costs. In October 2022, 57% of food retailers reported to the Business Insights and Conditions Survey (BICS) having to pass on price increases to customers. In our Consumer price inflation, UK: October 2022 bulletin, food and non-alcoholic beverage CPIH was estimated to be at their highest annual rate since September 1977 at 16.4%. While food price rises have been broad based since the beginning of 2022, with all the price of food product categories rising, higher prices for bread and cereals, milk, cheese and eggs, and meat have contributed more to inflation for low-income households.

Data from the Opinions and lifestyle survey (OPN) show, in response to price increases, those with personal incomes of less than £40,000 were more likely to spend less on food shopping and essentials than those with personal incomes of £40,000 or more. Food store sales volumes fell by 1.8% in September 2022 and were 3.2% below their pre-coronavirus (COVID-19) February 2020 levels, as highlighted in our Retail sales, Great Britain bulletin.

Rate of inflation experienced by housing tenure type
CPIH annual inflation for subsidised renters stood at 12.1% in October 2022. This is higher than for owner occupiers (9.4%) or private renters (9.1%), with a difference of 2.7 and 3.0 percentage points; these are the largest differences since the series began in January 2006. While the difference in CPIH between owner occupiers and private renters remained relatively stable over the period since January, the difference between the CPIH inflation experience of owner occupiers and subsidised renters increased.

When measured on a CPI basis, the owner-occupier's inflation rate in the year to October 2022 was 11.5%, as opposed to a 9.4% on a CPIH basis. The difference between these measures is because of the exclusion of owner occupiers housing costs (OOH) and council tax in the CPI measure. OOH reflect the flow of services a household receives from owning a property, and is consistent with national accounts methodology. OOH are measured on a rental-equivalence basis, the value of the use of the house is deemed to be equivalent to what the rent would be.

The exclusion of these components from CPI result in a higher weight given to the expenditure on non-discretionary spending, such as food and energy. The prices of these components are increasing at a faster rate than OOH, as such we see a 2.1 percentage point higher CPI measure compared with CPIH measure for owner-occupiers in October 2022. While the differences between CPI and CPIH measures of inflation for both subsidised renters and private renters are minimal, owner-occupiers housing costs do not contribute to the CPI or CPIH inflation rate for these groups.

Note
To read the full ONS report go HERE