An updated UK Consumer Price Inflation PowerPoint Slide Pack. Includes comparisons between UK, Eurozone and Republic of Ireland inflation trends. In addition, the latest trends in oil, petrol & diesel prices are included.

1. UK Consumer Price Inflation
February 2013 Update
Issued 14th February 2013
Richard Ramsey
Chief Economist Northern Ireland
richard.ramsey@ulsterbankcm.com

2. UK Inflation Summary
The annual rate of UK consumer price inflation (CPI) remained unchanged in January 2013 at 2.7% for the 4th
consecutive month. UK CPI has now been above the 2% Bank of England target for 38 months in a row. Meanwhile
the Retail Price Index (RPI) inflation measure saw its annual inflation rate accelerate to 3.3% in January 2013.
UK CPI has exceeded the Bank of England’s Monetary Policy Committee (MPC) of 2% in 58 out of 65 months since
the credit crunch began (August 2007). During this time, the Governor of the Bank of England (BoE) has written 13
‘Dear Chancellor Letters’ (a 14th letter was written in April 2007 before the credit crunch), to 3 different Chancellors,
explaining why CPI has deviated from the 2% target by more than one percentage point.
Since August 2007, UK CPI has increased cumulatively by 18.8%. This compares with a rise in average earnings of
just over 10%. Meanwhile, the inflation rates of other categories of consumer spending have increased at a much
faster rate. Utility bills (electricity, gas & other fuels) increased by 60% between August 2007 and January 2013. Over
the same time period food has risen by 35% and Transport Fuels & Lubricants (i.e. petrol & diesel) have risen by 40%.
Inflation has been more pronounced in the UK than in the Eurozone. Indeed, since the credit crunch began, the UK
has experienced the largest increases in consumer prices within the EU‐27, outside of Eastern Europe. Conversely, the
Republic of Ireland (RoI) has become the poster child of low inflation within Europe and is the only EU‐27 economy
not to experience a double‐digit rise in consumer prices since August 2007.
Since the credit crunch began (August 2007), the UK has experienced a cumulative rise in consumer prices 7.5 times
greater than that of the RoI (+2.5%). The divergence is even starker when comparing some items of consumer
spending. For example, UK food prices have risen by 35% since August 2007, whereas RoI food prices in November
2012 (latest data available) were no higher than they were when the credit crunch began.
The BoE’s latest Quarterly Inflation Report (Feb‐13) projected a peak in CPI of around 3.2% in mid‐2013. This would
require the existing Governor, or his successor Mark Carney, to pen another ‘Dear Chancellor Letter’. The BoE also
expects UK CPI to remain above the 2% target until 2016. If this comes to pass, this would represent 10 consecutive
years of a CPI (annual average) overshoot. 2005 was the last year that CPI averaged at or below the 2% target.

3. UK Consumer Prices: CPI Summary Table
UK CPI Inflation by Sub‐Category
January 2013 January 2013 % Change Since
CPI by main categories
% Y/Y % M/M August 2007*
Food & non‐alcoholic beverages 4.2 0.1 34.4
Alcohol & Tobacco 8.5 4.3 37.5
Clothing & Footwear 0.2 ‐5.4 ‐13.7
Housing & household services
3.5 ‐0.1 30.2
(includes water & fuel)
Furniture & Household Equipment 0.8 ‐2.3 16.8
Health 2.2 0.2 16.5
Transport 1.3 ‐0.6 23.4
Communication 3.5 1.0 12.9
Recreation & Culture 0.5 ‐0.1 3.6
Education 19.7 0.0 71.1
Restaurants & Hotels 3.2 0.0 18.7
Miscellaneous Goods & Services 1.4 ‐0.7 13.3
Overall CPI 2.7 ‐0.5 18.8
Source: ONS, * August 2007 marks the beginning of the credit crunch

4. UK CPI has exceeded the MPC’s 2% target in 58 out of 65
months since the credit crunch began (August 2007)
UK CPI vs RPIX
6
RPIX UK CPI
5
Old RPIX Target
4
3.3
3
2.7
2
1
New CPI Target
0
Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13

5. RPI & RPIX both hit 3.3% y/y in January 2013. RPI
has averaged 3.1% over the last 4 years
UK RPI vs RPIX
7
RPIX RPI
6
5
4
3
2
1
0
-1
Source: ONS, RPIX Excludes Mortgage Interest Payments
-2
Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13

6. Annual rate of RPI inflation accelerates in January. CPI &
CPIY remain unchanged while core CPI inflation rate eases
UK Inflation - CPI, Core CPI, CPIY and RPI
% Y/Y
7
CPI CPIY MPC Target RPI Core CPI
6
5
4 3.3
3 2.7
2.3
2
1
0
-1
-2
Source: ONS; CPIY excludes indirect taxation e.g. VAT; Core CPI excludes Energy, Food, Alcohol & Tobacco
-3
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

7. UK inflation still rising at a faster rate than earnings and
prolonging the income squeeze
% UK Average Weekly Earnings & CPI Inflation
6
Ave Weekly Earnings 3m Y/Y % (Excl. Bonuses) CPI Y/Y
5
4
Income
3 squeeze 2.7%
2
1.4%
1
Does not include taxes
Source: ONS or changes to benefits
0
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

8. The annual rate of energy & food inflation has eased markedly
since peaks in 2008 & 2009 but it’s the cumulative impact…
UK CPI Inflation Year-on-Year
50%
Food & Non-Alcoholic Beverages Electricity Gas & Other Fuels
Transport Fuels & Lubricants
40%
30%
20%
10%
4.5%
4.2%
0%
-0.7%
-10%
Source: ONS
-20%
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13

9. Since Aug-07 CPI has risen by almost 19% which compares
with a rise in average earnings of just over 10%
Cumulative % Change in UK Consumer Prices
since 'Credit Crunch' began (Aug 07 to Jan 13)
70%
Source: ONS, *Average Earnings as of November 2012
60%
50%
40%
30%
18.8%
20%
10%
0%
Food & Food Electricity Transport Transport Total CPI Average
Non- Gas & Fuels & Services Earnings*
Alcoholic Other Lubricants
Beverages Fuels

10. International
Consumer Price Inflation
Comparisons

11. Inflation has been more pronounced in the UK than in
the Eurozone…
Y/Y % UK CPI vs Eurozone HICP
6
UK CPI EZ 17 HICP
5
4
3
2
1
0
-1
Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13

12. …and even more pronounced relative to the
Republic of Ireland
% Y/Y UK CPI vs ROI HICP
7
UK CPI ROI HICP
6
5
4
3
2
1
-1
-2
-3
-4
Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13

13. The RoI has gone from having the highest annual rates
of inflation to the lowest
%
Consumer Price Inflation (HICP)
year-on-year
6
EZ UK RoI
5
4
3
2
1
0
-1
-2
-3
-4
Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13

14. Ireland has become the poster child of low inflation with the
UK experiencing the highest rises outside of Eastern Europe
EU-27 Cumulative % Rise in Consumer Prices (HICP)
since August 2007 to December 2012 / January 2013*
Ireland
Germany Source: ONS, CSO, *January 2013 only for EZ & UK, all others December
France
Portugal
EZ
Sweden
Netherlands
Malta
Denmark
Austria
Czech Republic
Belgium
Spain
EU 27
Luxembourg
Cyprus
Slovenia
Italy
Slovakia
Finland
Greece
UK
Poland
Bulgaria
Latvia
Estonia
Lithuania
Hungary
Romania
0% 5% 10% 15% 20% 25% 30% 35% 40%

15. The UK has experienced a cumulative rise in consumer
prices 7.5 times greater than the RoI since August 2007
UK & RoI CPI Inflation by Sub‐Category
UK % Change RoI* % Change
UK January 2013 RoI December
CPI by main categories Since August Since August
% Y/Y 2012 % Y/Y
2007 2007
Food & non‐alcoholic beverages 4.2 1.6 34.4 1.1
Alcohol & Tobacco 8.5 2.8 37.5 11.6
Clothing & Footwear 0.2 ‐0.8 ‐13.7 ‐22.2
Housing & household services
3.5 4.3 30.2 5.9
(includes water & fuel)
Furniture & Household Equipment 0.8 ‐2.8 16.8 ‐13.1
Health 2.2 0.2 16.5 13.6
Transport 1.3 3.6 23.4 6.7
Communication 3.5 ‐5.4 12.9 ‐1.1
Recreation & Culture 0.5 ‐0.7 3.6 ‐2.7
Education 19.7 4.8 71.1 37.1
Restaurants & Hotels 3.2 1.6 18.7 ‐1.2
Miscellaneous Goods & Services 1.4 3.3 13.3 15.8
Overall CPI 2.7 1.7 18.8 2.5
Source: ONS & CSO using HICP measure, *RoI is up to Dec‐12 not Jan‐13 as with the UK

16. UK Food & Drink prices have risen by over 1/3rd since
the credit crunch whereas in RoI the figure is just 1%
UK (NI) & RoI CPI Inflation Levels (HICP)
(August 2007 = 100)
140
UK Food & Drink RoI Food & Drink +34.4%
UK All Items CPI RoI All Items CPI
No Change in Prices
130
+18.8%
120
110
+2.5%
100 +1.1%
Source: ONS, CSO Ireland & UB Calculations, RoI figures up to Dec-12
90
Aug-07 Sep-08 Oct-09 Nov-10 Dec-11 Jan-13

17. After Hungary, the UK has posted the largest rise in food &
drink prices (& the RoI the least) within the EU-27 since Aug-07
EU 27 Cumulative % Rise in Food & Drink Prices
August 2007 to December 2012 (HICP)
Ireland
Portugal Source: ONS, CSO & Eurostat
Spain
France
Greece
EZ €
Italy
Netherlands
Germany
Sweden
Luxembourg
EU 27
Belgium
Austria
Slovakia
Cyprus
Denmark
Slovenia
Czech Republic
Finland
Bulgaria
Poland
Romania
Estonia
Lithuania
Latvia
Malta
UK
Hungary
0% 5% 10% 15% 20% 25% 30% 35% 40%

18. Food prices in the Republic of Ireland were no higher in
Nov 2012 than they were when the credit crunch began
UK v RoI Cumulative % Change in Consumer Prices
since 'Credit Crunch' began (Aug 2007 to Nov 2012)
60%
Source: ONS & Eurostat UK RoI
50%
40%
30%
18.8%
20%
10%
0%
-10%
Food & Non- Food Electricity Transport Transport All CPI
Alcoholic Gas & Other Fuels & Services
Beverages Fuels Lubricants

19. UK Oil, Petrol
& Diesel Prices

20. The rise in petrol prices is squeezing disposable incomes
UK Fuel Prices - Pence per litre
(Weekly)
160
Source: ONS Petrol Diesel 148.0p
150 143.0p
140
135.6p
130
120
110 59%
rise
100
90
85.4p
80
70
**Note Northern Ireland Prices are traditionally the highest of all UK regions**
60
Feb-04 Aug-05 Feb-07 Aug-08 Feb-10 Aug-11 Feb-13

21. Filling up an average family car with diesel now costs
over £85. One of the side-effects of a weak currency
£ UK Fuel Prices - Tank* of Petrol / Diesel
(*60 Litres)
100
**Note Northern Ireland Prices are traditionally the highest of all UK regions**
£88.8
90 £85.8
£81.3
80
70
59%
60 rise
50 £51.3
40
Source: ONS Petrol Tank Diesel Tank
30
Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13

22. It cost just £28 for a tank of fuel 20 years ago
£ UK Fuel Prices - Tank* of Petrol / Diesel
(*based on 60 Litres, monthly prices)
100
**Note Northern Ireland Prices are traditionally the highest of all UK regions**
90
80
70
60
50
40
30
Petrol Diesel Source: DECC
20
Jan-91 Sep-94 May-98 Jan-02 Sep-05 May-09 Jan-13

23. Remember it is the price of oil in sterling that matters
£/$ pb Price of Brent Crude Oil in Dollars & Sterling
Weekly
160
£pb $pb
140
120
100
80
60
40
20
Source: Bloomberg
0
Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13

24. It was £12.50 for a barrel of Brent crude 20 years ago.
Now it is £75pb
£/$ pb
Price of Brent Crude Oil in Dollars & Sterling
Weekly
160
£pb $pb
140
$118.9
120
100
£75.2
80
60
40
20
Source: Bloomberg
0
Feb-91 Oct-94 Jun-98 Feb-02 Oct-05 Jun-09 Feb-13

25. Forecourt petrol prices will broadly follow oil price (in £)
Brent Crude Oil (in £) versus UK Petrol Prices
Brent Crude £pb Pence per Litre
90 160
Brent Crude £pb (LHS) Petrol Prices Pence Per Litre (RHS)
80
140
70
60 120
50
100
40
30 80
20
60
10
Source: Bloomberg & DECC
0 40
Oct-03 Jul-05 May-07 Mar-09 Jan-11 Nov-12

26. UK Inflation
Forecasts

27. Probability of an inflation overshoot has risen significantly
since the last Quarterly Inflation Report (Nov 2012)
Probability of an inflation overshoot based on market interest
rate expectations has risen throughout the forecast period
Probability of CPI rising above 2%
has risen significantly relative to
November forecast throughout the
forecast period
Source: BoE QIR February 2013
Chart 5.5

28. The Bank of England expects UK inflation to remain
above its 2% target throughout the forecast period
CPI inflation projection based on constant nominal interest rates at 0.5% and
£375 billion asset purchases
Overshoot of 2% target
in 2 years time with a peak of
@3.2% in mid-2013
Marginal CPI undershoot of 2%
target in 2 yrs time 1.9%
Source: BoE QIR February 2013
(November 2012) (February 2013)

29. BoE expects UK inflation to remain above its 2% target until
2016 (i.e. 10 years of an annual average CPI overshoot)
CPI inflation projection based on market interest rate expectations
& £375 billion asset purchases
3 years of an overshoot
Source: BoE QIR February 2013

30. CPI inflation set to average 2.7% in 2013 & 2.1% next
year. RPI even higher at 3.4% in 2013 & 2.9% in 2014
UK Consumer Price Inflation
Y/Y % Core CPI excludes Energy, Food Alcohol & Tobacco
8 Annual Growth
Source: ONS & RBS Forecasts
7 CPI Core CPI RPI
2011 4.5% 3.2% 5.2%
6 2012 2.8% 2.3% 3.2%
5 2013 2.7% 1.8% 3.4%
2014 2.1% 1.4% 2.9%
4
3
2
1
0
Forecasts
-1
-2
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14
CPI RPI MPC Target Core

31. …with FBTE inflation averaging over 5% in 2013 &
4% in 2014
UK Consumer Price Inflation
Y/Y % *FBTE includes Food, Beverages, Tobacco & Energy
18
Source: ONS & RBS Annual Growth
CPI FBTE RPI
15
2011 4.5% 8.4% 5.2%
2012 2.8% 4.3% 3.2%
12 2013 2.7% 5.1% 3.4%
2014 2.1% 4.2% 2.9%
9
6
3
0
Forecasts
-3
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14
CPI RPI FBTE (CPI)

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