Slide pack by Richard Ramsey, chief economist, Northern Ireland, Ulster Bank, on UK Consumer Price Inflation

1. UK Consumer Price Inflation
November 2013 Update
Issued 20th November 2013
Richard Ramsey
Chief Economist Northern Ireland
richard.ramsey@ulsterbankcm.com
Twitter @UB_Economics

2. UK Inflation Summary
The annual rate of UK consumer price inflation (CPI) fell by 0.5 percentage points to 2.2% in October 2013. UK CPI
has now been above the 2% Bank of England target in 67 of the 74 months since the credit crunch began (Aug‐2007).
Meanwhile the Retail Price Index (RPI) inflation measure saw its annual inflation rate decelerate to 2.6% in Oct‐13.
The UK’s annual rate of CPI inflation (2.2%) compares with 1.0% for the United States, 0.7% for the Eurozone and ‐
0.1% for the Republic of Ireland.
Since August 2007, UK CPI has increased cumulatively by 21.2%. This compares with a rise in average earnings of
11%. 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 61% between August 2007 and October 2013. Over the same
time period food has risen by 37% and Transport Fuels & Lubricants (i.e. petrol & diesel) have risen by 39%.
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 times
greater than that of the RoI (+2.9%). The divergence is even starker when comparing some items of consumer
spending. For example, UK food prices have risen by 37% since August 2007, whereas RoI food prices in October 2013
were no higher than they were when the credit crunch began.
The BoE’s latest Quarterly Inflation Report (Nov‐13) projects the annual rate of CPI to be 2.2% at the 2‐year target
horizon assuming monetary policy settings remain constant. The BoE also expects UK CPI to remain above the 2%
target until 2016 (assuming no change in policy). 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
CPI by main categories
October 2013
% Y/Y
October 2013 % Change Since
% M/M
August 2007*
Food & non‐alcoholic beverages
3.9
0.1
36.3
Alcohol & Tobacco
5.4
0.3
41.2
Clothing & Footwear
1.0
1.0
‐7.1
4.1
0.0
32.1
Furniture & Household Equipment
1.0
‐0.4
19.3
Health
2.6
‐0.2
19.1
Transport
‐0.3
‐1.5
24.2
Communication
2.7
0.3
15.2
Recreation & Culture
0.7
0.2
4.5
Education
10.3
8.2
88.6
Restaurants & Hotels
2.8
0.2
21.3
Miscellaneous Goods & Services
0.7
‐0.2
14.3
Overall CPI
2.2
0.1
21.2
Housing & household services
(includes water & fuel)
Source: ONS, * August 2007 marks the beginning of the credit crunch

4. UK CPI has exceeded the MPC’s 2% target in 67 out of 74
months since the credit crunch began (August 2007)
UK CPI vs RPIX
6
RPIX
UK CPI
5
4
Old RPIX Target
3
2.7
2.2
2
1
New CPI Target
0
Oct-01
Oct-03
Oct-05
Oct-07
Oct-09
Oct-11
Oct-13

5. The annual rate of RPI & RPIX inflation in October
2013 fell to its lowest rate in 13 months
UK RPI vs RPIX
7
RPIX
RPI
6
5
4
3
2
1
0
-1
-2
Source: ONS, RPIX Excludes Mortgage Interest Payments
-3
Oct-01
Oct-03
Oct-05
Oct-07
Oct-09
Oct-11
Oct-13

6. All measures of inflation ease significantly in October with
Core CPI dipping below 2% for the first time since Nov-09
% Y/Y
7
UK Inflation - CPI, Core CPI, CPIY and RPI
CPI
CPIY
MPC Target
RPI
Core CPI
6
5
4
3
2.6
2.3
2.2
2
1.7
1
0
-1
-2
Source: ONS; CPIY excludes indirect taxation e.g. VAT; Core CPI excludes Energy, Food, Alcohol & Tobacco
-3
Oct-08
Oct-09
Oct-10
Oct-11
Oct-12
Oct-13

7. UK inflation still rising at a much faster rate than
earnings and therefore prolonging the income squeeze
UK Average Weekly Earnings & CPI Inflation
%
6
Ave Weekly Earnings 3m Y/Y % (Excl. Bonuses)
CPI Y/Y
5
4
3
Income
squeeze
NICE
Decade
2
2.2%
1
Does not include taxes
or changes to benefits
Source: ONS
0.8%
0
Oct-01
Oct-03
Oct-05
Oct-07
Oct-09
Oct-11
Oct-13

8. Energy & food inflation has eased markedly since 2008 & 2009
but it’s the cumulative impact that is doing the damage…
UK CPI Inflation Year-on-Year
50%
Food & Non-Alcoholic Beverages
Electricity Gas & Other Fuels
Transport Fuels & Lubricants
40%
30%
20%
10%
7.7%
4.0%
0%
-4.2%
-10%
-20%
Source: ONS
Oct-05
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
Oct-12
Oct-13

9. Since Aug-07 CPI has risen by 21% which compares with
a rise in average earnings of just 11%
Cumulative % Change in UK Consumer Prices
since 'Credit Crunch' began (Aug 07 to Oct 13)
70%
60%
50%
40%
30%
21.2%
20%
10%
0%
Food &
NonAlcoholic
Beverages
Food
Electricity Transport Transport Hotels & Total CPI Average
Gas & Other Fuels & Services Restaurants
Earnings*
Fuels Lubricants

10. International
Consumer Price Inflation
Comparisons

11. Inflation has been more pronounced in the UK than in
the Eurozone…
UK CPI vs Eurozone HICP
Y/Y %
6
UK CPI
EZ HICP
5
4
3
2.2
2
1
0.7
0
-1
Oct-01
Oct-03
Oct-05
Oct-07
Oct-09
Oct-11
Oct-13

12. …and even more pronounced relative to the
Republic of Ireland
UK CPI vs RoI HICP
% Y/Y
7
UK CPI
ROI HICP
6
5
4
3
2.2
2
1
-1
-0.1
-2
-3
-4
Oct-01
Oct-03
Oct-05
Oct-07
Oct-09
Oct-11
Oct-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
2.2
1
0.7
0
-0.1
-1
-2
-3
-4
Oct-01
Oct-03
Oct-05
Oct-07
Oct-09
Oct-11
Oct-13

14. Ireland has become the poster child of low inflation with the
UK experiencing the highest rises outside of Eastern Europe
EU-28 Cumulative % Rise in Consumer Prices (HICP)
August 2007 to October 2013
Ireland
Germany
Portugal
France
Sweden
EU 28
EZ
Netherlands
Denmark
Spain
Belgium
Austria
Malta
Czech Republic
Cyprus
Italy
Slovakia
Luxembourg
Greece
Slovenia
Finland
Croatia
Poland
UK
Bulgaria
Latvia
Lithuania
Estonia
Hungary
Romania
0%
2.9%
Source: ONS & Eurostat
€
12.7%
12.7%
21.2%
5%
10%
15%
20%
25%
30%
35%
40%

15. The UK has experienced a cumulative rise in consumer
prices 7 times greater than the RoI since August 2007
UK & RoI CPI Inflation by Sub‐Category
UK % Change
Since August
2007*
RoI % Change
Since August
2007*
CPI by main categories
UK October
2013 % Y/Y
RoI October
2013 % Y/Y
Food & non‐alcoholic beverages
3.9
0.1
36.3
0.5
Alcohol & Tobacco
5.4
5.3
41.2
18.4
Clothing & Footwear
1.0
‐4.1
‐7.1
‐24.3
4.1
3.0
32.1
9.0
Furniture & Household Equipment
1.0
‐4.0
19.3
‐16.6
Health
2.6
0.6
19.1
14.3
Transport
‐0.3
‐3.5
24.2
5.3
Communication
2.7
‐3.8
15.2
‐2.9
Recreation & Culture
0.7
0.0
4.5
‐2.8
Education
10.3
4.7
88.6
43.2
Restaurants & Hotels
2.8
1.7
21.3
0.5
Miscellaneous Goods & Services
0.7
‐1.5
14.3
13.4
Overall CPI
2.2
‐0.1
21.2
2.9
Housing & household services
(includes water & fuel)
Source: ONS & CSO using HICP measure, * denotes when credit crunch officially began

16. UK Food & Drink prices have risen by 36% since the credit
crunch started whereas in RoI they are almost unchanged
UK (NI) & RoI Consumer Price Inflation Levels
(August 2007 = 100)
140
UK Food & Drink
UK All Items CPI
+36.3%
RoI Food & Drink
RoI All Items CPI
130
+21.2%
120
110
+2.9%
100
+0.5%
Source: ONS, Eurostat HICP inflation & UB Calculations
90
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
Oct-12
Oct-13

17. After Hungary, the UK has posted the largest rise in food &
drink prices (& the RoI the least) within the EU-28 since Aug-07
EU-28 Cumulative % Rise in Food & Drink Prices
August 2007 to October 2013 (HICP)
Ireland
Portugal
Spain
France
Greece
Netherlands
EU 28
EZ
Italy
Germany
Sweden
Luxembourg
Denmark
Belgium
Austria
Cyprus
Slovakia
Croatia
Bulgaria
Czech Republic
Slovenia
Finland
Romania
Poland
Latvia
Lithuania
Estonia
Malta
UK
Hungary
0%
0.5%
Source: ONS & Eurostat
€ 14.2%
14.3%
36%
5%
10%
15%
20%
25%
30%
35%
40%

18. Food prices in the RoI were no higher in October 2013
than they were when the credit crunch began!
UK v RoI Cumulative % Change in Consumer Prices
since 'Credit Crunch' began (Aug 2007 to Oct 2013)
70%
UK
RoI
60%
50%
40%
30%
21.2%
20%
10%
2.9%
0%
Food & NonAlcoholic
Beverages
Food
Electricity Transport Transport Hotels &
Gas & Other Fuels &
Services Restaurants
Fuels
Lubricants
All CPI

19. Consumers in the RoI have benefited from almost no
Hotel & Restaurant inflation over the last 6 years too
EU-28 Cumulative % Rise in Hotel & Restaurant Prices
August 2007 to October 2013 (HICP)
Ireland
Spain
France
Greece
Croatia
Italy
Latvia
EZ
Portugal
Belgium
Malta
Germany
Cyprus
EU 28
Czech
Sweden
Netherla
Austria
Slovenia
Denmark
Luxembo
UK
Slovakia
Finland
Poland
Lithuania
Hungary
Estonia
Romania
Bulgaria
0%
0.5%
Source: ONS & Eurostat
12% €
14.5%
21%
5%
10%
15%
20%
25%
30%
35%

20. Northern Ireland’s tourist industry has experienced
fierce price competition from its nearest competitor
UK (NI) & RoI Hotel & Restaurant CPI Levels
(August 2007 = 100)
130
UK
RoI
No Change
+21.1%
120
110
+0.5%
100
Source: ONS, Eurostat HICP inflation & UB Calculations
90
Jul-07
Oct-08
Jan-10
Apr-11
Jul-12
Oct-13

21. Consumers in the RoI have seen energy inflation below
that in the EZ & half of that in the UK
Cumulative % Rise in Electricity, Gas & Other Fuels Prices
August 2007 to October 2013 (HICP)
Source: ONS & Eurostat
Netherlands
Sweden
Slovakia
Austria
Bulgaria
Luxembourg
Denmark
Italy
Ireland
Germany
Hungary
EU 28
EZ
France
Czech Republic
Belgium
Portugal
Poland
Romania
Slovenia
Croatia
Cyprus
Spain
Finland
UK
Estonia
Lithuania
Malta
Latvia
Greece
0%
29%
35%
35%
€
Greece has seen prices more
than double as hiking electricity
bills was a measure to raise
household taxation revenue
61%
20%
40%
60%
80%
100%
120%

22. UK Oil, Petrol
& Diesel Prices

23. Petrol & diesel prices have fallen from their recent highs
UK Fuel Prices - Pence per litre
(Weekly)
Pence
160
Source: ONS
Petrol
Diesel
150
148.0p
140
137.5p
130
129.9p
120
110
100
90
85.4p
80
70
60
Nov-04
**Note Northern Ireland Prices are traditionally the highest of all UK regions**
May-06
Nov-07
May-09
Nov-10
May-12
Nov-13

24. Filling up an average family car with petrol or diesel
has fallen by 7-8% relative to last April’s peak
UK Fuel Prices - Tank* of Petrol / Diesel
£
100
(*60 Litres)
**Note Northern Ireland Prices are traditionally the highest of all UK regions**
£88.8
90
June Budget
2010
80
£82.5
£77.9
70
60
50
£51.3
'Credit Crunch'
begins
40
30
Source: ONS
Petrol
Diesel
Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13

25. Filling up some vehicles still costs well over £100
UK Tank of Diesel Prices
£
160
Diesel
Toyota Hilux / Nissan Navarra 80L
Toyota Land Cruiser 93L
£138
140
£118
120
£127.8
£110
100
£88.8
£91.4
80
£82.5
£78.7
60
40
£58.5
Source: DECC & UB Calculations
Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13

26. It cost < £30 for a tank of fuel 20 years ago
UK Fuel Prices - Tank* of Petrol / Diesel
£
100
(*based on 60 Litres, monthly prices)
**Note Northern Ireland Prices are traditionally the highest of all UK regions**
90
80
70
60
50
40
30
Petrol
Diesel
20
Nov-91
Jul-95
Mar-99
Nov-02
Jul-06
Source: DECC
Mar-10
Nov-13

27. 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
$108.5
100
80
£67.3
60
40
20
Source: Bloomberg
0
Nov-06
Jan-08
Mar-09
May-10
Jul-11
Sep-12
Nov-13

28. It was £12.50 for a barrel of Brent crude just over 20
years ago. Now it is £67pb having hit £80pb last year
£/$ pb
Price of Brent Crude Oil in Dollars & Sterling
Weekly
160
£pb
$pb
140
120
$108.5
100
80
£67.3
60
40
20
Source: Bloomberg
0
Nov-91
Jul-95
Mar-99
Nov-02
Jul-06
Mar-10
Nov-13

29. Forecourt petrol prices will broadly follow oil price (in £)
Brent Crude Oil (in £pb) versus UK Petrol Prices
Pence per Litre
Brent Crude £pb
90
Brent Crude £pb (LHS)
Petrol Prices Pence Per Litre (RHS)
160
80
140
70
120
60
50
100
40
30
80
20
60
10
Source: Bloomberg & DECC
0
Oct-05
40
Dec-06
Feb-08
Apr-09
May-10
Jul-11
Sep-12
Nov-13

30. Domestic heating oil has fallen by 9% since Feb-13
peak but prices still up 84% in 6 years
UK Price of Domestic Heating Oil
per 1,000 Litres
£
700
£688
£630
600
500
400
300
£342
Source: ONS
200
Sep-06 Sep-07 Sep-08
Sep-09 Sep-10 Sep-11
Sep-12 Sep-13

31. Electricity and gas prices have also posted significant
rises since the credit crunch began (Aug-2007)
UK Electricity, Gas & Other Fuels CPI Levels
Index
Index August 2007 = 100
220
Gas
Electricity
Liquid Fuels
No Change
200
+84%
180
160
+76%
140
+46%
120
100
Source: ONS CPI & UB Calculations
80
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13

32. UK Inflation
Forecasts

33. Probability of an inflation overshoot has fallen significantly
since the last Quarterly Inflation Report (Aug 2013)
Probability of an inflation overshoot based on market interest
rate expectations has fallen throughout the forecast period
Probability of CPI rising above 2%
has fallen significantly relative to
August forecast throughout the
forecast period
Source: BoE QIR November 2013
Chart 5.4

34. BoE expects CPI to remain above its 2% target until 2016
(i.e. 10 years of an annual average CPI overshoot)
CPI inflation projection based on constant nominal interest rates at 0.5% and
£375 billion asset purchases
2.2% in 2 years time & 2.1% in 3
years time
Overshoot at 2-yr horizon
Source: BoE QIR November 2013
(August 2013)
(November 2013)

35. CPI inflation set to average 2.4% in 2014 & 2.2% in
2015. RPI even higher at 2.8% in 2014 & 2.6% in 2015
UK Consumer Price Inflation
Y/Y %
8
7
6
5
4
3
2
1
0
-1
-2
Core CPI excludes Energy, Food Alcohol & Tobacco
Annual Growth
Source: ONS & RBS Forecasts
Dec-09
2011
2012
2013
2014
2015
CPI
Core CPI
4.5%
3.2%
2.8%
2.3%
2.6%
2.1%
2.4%
1.6%
2.2%
1.8%
RPI
5.2%
3.2%
3.1%
2.8%
2.6%
Forecasts
Dec-10
Dec-11
CPI
Dec-12
RPI
Dec-13
MPC Target
Dec-14
Core
Dec-15

36. FBTE inflation to average 4.8% in 2014 & 3.3% in 2015
at a time when some welfare benefits capped at 1% p.a
UK Consumer Price Inflation
Y/Y %
*FBTE includes Food, Beverages, Tobacco & Energy
18
Annual Growth
Source: ONS & RBS
15
CPI
4.5%
2.8%
2.6%
2.4%
2.2%
2011
2012
2013
2014
2015
12
9
FBTE
8.4%
4.3%
4.2%
4.8%
3.3%
RPI
5.2%
3.2%
3.1%
2.8%
2.6%
6
3
0
Forecasts
-3
Dec-09
Dec-10
Dec-11
CPI
Dec-12
RPI
Dec-13
Dec-14
FBTE (CPI)
Dec-15

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Slide 37