Inflation

Sterlingtimes

I wonder whether the effect of the inflation of home energy costs is fully reflected by the Consumer Prices Index (CPI).

A New State Pension could be £9,339 a year and the 3.1% increase for 2022/23 is £290.

I have found from EDF that the average annual home energy bill is £1,138. An increase of 50% in the next 12 months could be plausible, i.e. £569.

Energy inflation alone for a person on State Pension only could be twice the CPI increase.

Would next September's CPI account for the energy price increase?

blue.peter

CPIH includes it.

If you head here, you can download an Excel spreadsheet that sets out the composition of the basket of goods and services that is used in calculating CPIH. Annex A to the spreadsheet explicitly includes, at 04.5, average of the electricity companies’ tariffs and average of the gas companies’ tariffs.

I'm sure that there must be a similar listing for CPI, but my quick search didn't turn it up. Since energy is included in CPIH under "housing & household services", I've a suspicion that CPI might not include it. On the other hand, I see that there's a note against 04.2 (Owner Occupiers' Housing Costs) "(only in CPIH)", which seems to imply that 04.5, which doesn't have a similar note, might well be included in CPI.

If you dig around long enough on the ONS web site, you might be able to find out for certain.

Grumpy_chap

Sterlingtimes said:

I wonder whether the effect of the inflation of home energy costs is fully reflected by the Consumer Prices Index (CPI).

A New State Pension could be £9,339 a year and the 3.1% increase for 2022/23 is £290.

I have found from EDF that the average annual home energy bill is £1,138. An increase of 50% in the next 12 months could be plausible, i.e. £569.

Energy inflation alone for a person on State Pension only could be twice the CPI increase.

Would next September's CPI account for the energy price increase?

Should this question be asked in the context of a single year? 
Or should some consideration be carried forward from years where energy costs have reduced because of oil price slumps?

blue.peter

Grumpy_chap said:

Should this question be asked in the context of a single year? 
Or should some consideration be carried forward from years where energy costs have reduced because of oil price slumps?

Could you explain your point, please? If energy costs are included in the index calculations, a reduction in those costs would result in a reduction in the index, just as an increase would have the opposite effect. Wouldn't it?

blue.peter

Later...

I've just done a lttle more digging, and found this article. If I've understood it and the spreadsheet correctly:

1. the spreadsheet to which I referred you last night contains the composition of both CPI and CPIH; and
2. the inclusion of owner occupiers' housing costs and council tax and rates in CPIH are the only differences between them.

Assuming that I'm right - and you're welcome to read the article yourself to check me - the answer to your question appears to be "yes".

(As a side issue, I don't understand why rent is included in CPI and CPIH, whilst council tax is only included in CPIH. Renters pay council tax; it's not limited to owner occupiers. Well, for the short period that I rented, I certainly had to pay council tax.)

Sterlingtimes

blue.peter said:

Later...

I've just done a lttle more digging, and found this article. If I've understood it and the spreadsheet correctly:

Thank you, blue.peter, for providing the reference material which I have read. Indeed, all of the three leading indices do include household energy.

I subsequently found a simple little article in The Times:

• RPI includes mortgage interest payments: this means it is “heavily influenced” by house prices and interest rates
• CPI takes no account of housing costs: but factors in all the other goods and services
• CPIH includes housing costs but uses an approach called “rental equivalence”: this is not the mortgage payments but how much rent the householder would pay for an equivalent property

RPI vs CPI Inflation: What’s The Difference?- Times Money Mentor (thetimes.co.uk)

CPIH does from time to time have lower annual inflation than CPI.

Yesterday, Goldman Sachs was predicting a CPI of 7% in the near term. Energy prices are going to be a hard hit for pensioners, particularly those living on the State Pension alone.  

Sterlingtimes

Grumpy_chap said:

Should this question be asked in the context of a single year? 
Or should some consideration be carried forward from years where energy costs have reduced because of oil price slumps?

I think that we do look at a single year because the State Pension inflationary figure is decided based upon the September figure each year. Should gas and electricity prices decline during the 12 month period leading up to September, then the corresponding pension increase could be limited to 2.5% (the minimum). However, it is anticipated that gas and electricity prices may increase by 50% and CPI could be as high as 7%.

missile

Glad I did not sell my NS&I index linked savings bonds

Sterlingtimes

From yesterday's Daily Telegraph: "Workers must demand their pay rises by 8.7pc just to keep up with spiralling inflation and upcoming tax increases after prices grew at their fastest rate in three decades. The consumer prices index climbed to 5.4pc last month, figures released today have shown."

Meanwhile, state pensioners are stuck with a 3.1% increase in April. I wonder what equivalent increase pensioners would "demand" to equate to the 8.7% required by workers. 

Clowance

nhs workers got 1% for the last several years and are not likely to get this mythical 8,7pc. Obviously the government feel they are not worth it!

Sterlingtimes

Clowance said:

nhs workers got 1% for the last several years and are not likely to get this mythical 8,7pc. Obviously the government feel they are not worth it!

I did check this out here: How has NHS staff pay changed over the past decade? - The Health Foundation

In real terms (accounting for inflation), the NHS pay has almost remained static.