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From CPI to CPIH

Consumer price inflation measures the rate at which the price of certain goods and services rise or fall. Until 21 March 2017, the Consumer Prices Index (CPI) was the UK’s headline measure of inflation; from that date, however, it changed to CPIH, which includes housing costs.

CPIH is not designed to capture house-price rises; instead, it calculates how much an owner-occupier would have to pay if they were to rent their own home. The Office for National Statistics (ONS) believes the new measure will reflect the cost of housing without any distortions from increases or declines in house prices. Some economists, however, have reservations about the overall reliability of CPIH as a genuine measure of the impact of housing costs upon the British public. Moreover, in the past, CPIH had some problems with credibility that led to its suspension in 2014 on the grounds of “quality issues with owner occupiers’ housing costs”; these, according to the ONS, have “now been resolved”.

The official inflation data are used by a multitude of different organisations, from setting wages and indexing pensions or state benefits to determining rail fares and calculating the value of index-linked bonds. Looking ahead, the ONS wants CPIH to become the preferred measure of inflation, because it “includes owner occupiers’ housing costs, which are important components of household expenditure”. Housing costs will form 16.5% of the total calculation, reflecting the significance of those costs upon UK households.

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