The Office for National Statistics has reported this morning that:
- The Consumer Prices Index (CPI) rose by 3.0% in the 12 months to January 2025, up from 2.5% in the 12 months to December 2024.
- On a monthly basis, CPI fell by 0.1% in January 2025, compared with a 0.6% fall in January 2024.
- The largest upward contribution to the monthly change in the CPI annual rate came from transport, and food and non-alcoholic beverages; the largest downward contribution came from housing and household services.
- Core CPI (excluding energy, food, alcohol and tobacco) rose by 3.7% in the 12 months to January 2025, up from 3.2% in December 2024; the CPI goods annual rate rose from 0.7% to 1.0%, while the CPI services annual rate rose from 4.4% to 5.0%.
Let me state the obvious: inflation fell by 0.1% in January. It just did not fall by as much as it did last year, so the annual index went up. But it fell on both occasions.
In that case, there is no cause for panic.
The Bank of England does not need to react by putting up interest rates.
Mass hysteria amongst economic correspondents is not required.
Politicians would be wise to shut jup.
This is just how the index works.
And now the rate will fall again.
A 0.1% fall in inflation is just fine. Now, let's use a little maturity when appraising the way in which indices work and move on, because there is nothing of consequence to talk about here unless it is to say that inflation remains an issue of little consequence in the UK right now.
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The Economics of Walking About suggests that inflation would fall after Christmas as retailers attempt to shift unsold stock and customers have to deal with the post Christmas bills
In much the same way when the sun starts to come out bank balances will have healed and there will be more opportunities to shift ‘stuff’
Well, thats my take anyway
And fall it did.
But not by as much as it did last year (to paraphrase your article)
The BBC Breakfast show coverage of this is absolutely awful. They only reference the annual rise and link it to wage increases. So the BBC is now actively campaigning on behalf of the most wealthy.
Their ignorance is not the precursor of bliss.
Like the Chancellor & the Bank, I’m a bit hazy on inflation & easily confused. (Similarly, with bonds )
I know that annual rates show inevitable changes 12 months after a rise or fall because the change simply drops out of the calculation.
I understand that prices don’t fall when the rate goes down, they just stop rising so fast.
And I get that the most recent monthly rate change, Jan 25, is -0.1% – a FALL.
But I don’t feel confident enough to explain your main point of a 0.1% fall, against those earlier annual rises, and wouldn’t dare raise it on the omnibus. I’d be struggling even more if the free Metro paper had a hysterical pundit telling us all on the front page that interest rates needed to go up.
If s/o said to me that a monthly figure was a blip, an annual rate is a “trend”, I wouldn’t know what to say in rebuttal.
Anyone else out there struggling like me? We believe the argument, but arguing it out is a struggle.
Help!
On an annual basis my UOE (understanding of economics) is up by about 20%, but on a monthly basis, my UOI (understanding of inflation) shows a fall of 5%. My remedy is to put my “interest” rate up although core internal indicators such as my intelligence, unfortunately remain unchanged.
🙂
Keep at it. You will get there.
Just look at the actual CPI figures quoted by the ONS for January 2024, December 2024 and January 2025. That index measures prices of goods and services. Inflation is just a change in that index from period to period (monthly, quarterly, yearly, whatever).
Correct, and thanks
As suggested, you can look at the INDEX, not the ‘headline’ (of the rate of change of the index). If, as a former chartered engineer and now amateur economist (?!) you prefer a graph – not possible to post here, I think – you can do that on the ONS website:
https://www.ons.gov.uk/economy/inflationandpriceindices/timeseries/d7bt/mm23
But here’s a table that I copied (CPI index, baseline 2015 = 100):
2023 JAN 126.4
2023 FEB 127.9
2023 MAR 128.9
2023 APR 130.4
2023 MAY 131.3
2023 JUN 131.5
2023 JUL 130.9
2023 AUG 131.3
2023 SEP 132.0
2023 OCT 132.0
2023 NOV 131.7
2023 DEC 132.2
2024 JAN 131.5
2024 FEB 132.3
2024 MAR 133.0
2024 APR 133.5
2024 MAY 133.9
2024 JUN 134.1
2024 JUL 133.8
2024 AUG 134.3
2024 SEP 134.2
2024 OCT 135.0
2024 NOV 135.1
2024 DEC 135.6
2025 JAN 135.4
Note the monthly changes, Dec24/Jan25 – and Jun24/Jul24 for example – to see the point about ‘monthly’ versus ‘annual’.
February and March 2025 are going to be interesting
The Consumer Prices Index rose quite fast in February and March 2024. Assuming we don’t see that again this year, which seems fairly likely as there seem to be few signs of an overheating economy or of excess demand or restrictions on supply, then inflation over the previous 12 months will fall back as quickly as it has risen, but perhaps 1% in the next couple of months.
To put it another way, the drop in January 2024 was a blip. And that has given us a blip upwards 12 months later.
Agreed, entirely.
‘Project fear’ has always been a Neo-liberal project.
So much wrong with the lazy way the media deals with inflation data.
First, it is dangerous to do any analysis with Y-o-Y data delivered on a monthly basis. Comparing this month’s YoY data with last months YoY data delivers all sorts of problems statistically speaking.
Second, they obsess over every 0.1% when that may well just be noise.
Third, they confuse inflation (the rate of change in prices) with prices.
YoY inflation rose, MoM inflation fell – so did inflation go up or down? Take your pick. What we do know is that prices fell slightly and are now lower than a month ago.
No, we know the rate of price increases is lower than it was a month ago. That is the mosty we can conclude – but that is, after all, what infation meaasures.
The CPI index in January 2025 is “calculated” to be 135.4, compared to 135.6 in December 2024.
Is not CPI an index of prices (ie a proxy for the ‘general price level’ P, in macro-economic terms)?
So I agree with Clive Parry that ‘prices are lower than a month ago’ (even if only very very slightly).
That is of course not the lived experience of most people (‘on the omnibus’ etc) – although I will say that there are a few regular purchases of mine that have stayed the same for a while. But I don’t buy anything like the ONS’s ‘standard shopping basket’.
Inflation has fallen
The rate of change has reduced
This observation covers a large number of other posts.
We know many/most/all(?) UK institututions are corrupt or failing. Mr Hoare notes that the BBC’s coverage is awful – i.e. normal for the current circumstances.
One of the actions that people in the US are doing is, contacting their representatives – by phone. Of course, this is quasi-impossible wrt “the mother of all parliaments” & letters of complaint tend to get filed vertically. That said – if there is an avalanche of letters – on a given subject – from constituents would that change things? (or e-mails?).
I have a few other ideas, taken from the Putler play-book. Who would like to play?
We can stand and wring our hands – or we can get down & dirty & make life hell for those that pretend to run things.
Make the suggestions Mike
If I like them I will amplify the
Mike – you say – Who would like to play?
I would.
Me too.
Chap from the ONS on the radio this morning explaining why inflation rose in January 2025. Food, VAT on school fees, air fares, etc. (I mean seriously, what difference would VAT on school fees for the small fraction of the population attending private schools change CPI?)
Except of course prices fell month to month. They rose over the previous 12 months. Mainly because January 2025 prices did not fall as fast this year as they did last year. Perhaps because December 2024 prices increased less than the previous year, so thee was less “January sales” discounting. But that is not the same thing at all.
Even if you accept that interest rates can tackle inflation (when you have one economic indicator to manage, and one lever to move up or down, you have to believe they are connected somehow) is it sensible to change interest rates today, based on how prices changed 12 months ago? Or rather should you react to current and future expected conditions?
Such commentary makes me want to scream.
I concluded a while ago that very few people seem to understand inflation, including people whose job it is to understand it.
The MoM / YoY thing appears to completely throw people off. I (cynically) suspect that economists like to use the YoY measurement to save having to multiply by 12 (yes I know, it smooths out cyclical variations, but that’s lost on many people).
But the worst thing is that when the latest figure is released (always the YoY one), it’s described as “current” inflation, whereas it’s actually average historic inflation over the last 12 months. Thus, what happened a year ago has as much impact as what happened this month, and is a ludicrous basis for monthly tweaks of interest rates.
In absolute terms, current inflation is today’s price compared to yesterday’s, but of course that’s totally impractical to measure, so the nearest workable measurement is MoM.
Commentators also tend to get lost between prices, inflation (1st derivative), and change in inflation (2nd derivative). No wonder the average punter is confused!
You are right
People seek explanations for a yearly change in the curent month
They will tie themselves in knots next month, and the month after in that case
As a statistician I was VERY “disappointed” by the chap from the ONS on the radio – gives credibility
to such simplistic nonsense
As usual with such reports, I search in vain for any evidence of statistical error analysis: error bars in a graph; derived results with a ± (plus-minus) symbol. Nothing.
Are economic statisticians immune from measurement error and statistical noise?
Is it a ploy to drive growth by keeping news outlets busy, grubbing around in the noise for a story?
It’s contemptible.
50 yrs ago, a lady we nicknamed Miss Poisson, bravely taught our rowdy vocational 2nd year uni class a part-time statistics course (examined with genetics). Once we realised that with minimal application it was possible to collect a 100% mark in annual exams (the annual attrition was quite high, of 68 in yr 1, only 35 of us qualified 5 years later and most fell at the end of year 2) we gave Miss Poisson our full attention. It was pretty basic stuff, and like calculus, I didn’t always understand it but could do the sums and get those precious high marks.
But when I hear journalists doing economics pieces or read Treasury stuff in popular press, they NEVER seem to refer to error levels or standard deviation (and its statistical colleagues whose names I’ve forgotten), which should blow their “0.1%” garbage into the statistical dustbin.
It’s not just in economics – Bad Pharma is far worse which is what Wes (check my donors) Streeting relies on.
There is a perverse pride in being functionally innumerate in the UK
I’ve got two points really which could use an answer.
1. You say inflation is falling and that people “don’t understand the statistics” but that doesn’t really ring true.
Whilst you are correct that month on month the number has fallen, nobody measures inflation that way. The year on year numbers are what matters and those have risen, and are expected to keep rising all year.
So how can you claim that inflation is falling, except in the most narrow definition versus last month – which could easily reverse next month.
2. I’ve read some of your stuff regarding MMT and you say that tax rises would be used to control/being down inflation.
This doesn’t seem to work in practice as in the latest inflation numbers the ONS are saying that certain prices have RISEN directly as a function of government increasing taxes. Specifically food prices and education.
Doesn’t this mean that you can’t really use taxes in the way you suggest to control inflation? Which is rather a problem for MMT?
They are not expected to rise all year
Read comments by Andrew on here
And the whole point of indices is to do comaprison. Trolling is very un attractive.
I won’t bother with your nonsense on MMT in that case
Even I can see that increasing employers NI contributions by increasing rates and lowering thresholds, directly increases wage costs, whereas reducing higher rate tax relief on rich peoples pension contributions has v little if any inflationary effect on prices or wages.
Perhaps you can show us your working?
The point of taxes in MMT is to reduce money supply when the money in circulation exceeds the resources of things it can be used to buy.
It also is redistributive and can help influence patterns of consumption (sugar, alcohol, tobacco).
I think you are being mischievous.
Jordan: strangely enough, many people find that higher interest rates increase their cost of living — but, as I recall, mortgages aren’t included in the inflation figures. And no doubt higher interest rates lead some businesses to try to recoup some of their increased cost of debt through higher prices.
Taxes remove money from the economy altogether, whereas interest rates… let me paraphrase the much-missed Caroline Aherne (as Mrs Merton):
What was it about inflated bank profits and transfer of more wealth to the wealthy that first attracted you to increasing interest rates as a means of reducing inflation?
Jordan wrote: “1. You say inflation is falling and that people “don’t understand the statistics” but that doesn’t really ring true.”
I think I have my head around this now. I’m looking at “2. Consumer price inflation rates”
Source: https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/latest#consumer-price-inflation-rates
The first data column, “CPIH Index” shows average prices for a selected “shopping basket” of goods. Jan 2025 shows CPIH at 135.1 which is higher than this time last year (Jan 2024) at 130.0, which is what we would expect because the inflation rate is positive (prices are indeed rising).
But we are comparing inflation rates (the rate at which inflation is changing) second column “CPIH 12-month rate (%)”. The inflation rate for Jan 2025 is 3.9% compared to last year at 4.2%. This shows that inflation has fallen by 0.3% compared to this time last year. This tend is good (assuming that a 2% inflation rate is optimal, and that is arbitrary and unsubstantiated).
You are comparing CPIH data and I am using CPI data…but that is the only difference between us.
There is a seasonal variation in month to month inflation, which reflects seasonal factors on prices. Among those factors are Christmas shopping and January sales, which push prices up then down. Also seasonal patterns on purchase of clothes or types of food, staying at home or going out, school holidays and I suspect the January tax deadline has an impact. But it is a very broad basket of prices so for example increase in food prices can be offset by lower prices for clothing or furniture or services.
February and March are going to be very interesting. Will prices broadly increase this year as fast as last year? I don’t see why they should. Uncertain geopolitics and domestic economic headwinds encourage people to save not spend.
I have the same feeling as you
I think food supplies may be dodgy, for climate, and security reasons affecting domestic & imported food.
Gov does not bother about this much.
The interviewer should be asking
“Are you talking about prices, inflation or the rate of change of inflation?”
and
“So what exactly is the difference between the monthly and the annual figure?”
and
“How can a change in the BoE interest rate affect what was happening a year ago?”
and
“What exactly is affecting the inflation monthly figure right now? Can you give us figures?”
and
“How will changing the interest rate affect that item?”
I can’t see many politicians or pundits surviving more than 60 seconds on air with those questions to answer. Yet they get answered here every single day whenever inflation is discussed. We are being appallingly served by our media. But then you knew that anyway. Doesn’t seem to adversely affect Nick Robinson’s salary though…