The Headline CPI for July 2021 was 2.0%, down from 2.5%. I have analysed what underlies this in my NIESR Blog of August 18th. As I argued there, the drop was due to the monthly “spike” in inflation the previous July 2020 dropping out of the headline figure. The “new” monthly inflation in July was just below zero (-0.02%).

In this Blog I just want to look a little deeper at the item index level. The CPI is constructed of many items, and the ONS published 733 of these alongside the headline figure. Each item index is constructed from an average of over 100 price-quotes, to capture prices in different regions and types of shop. In the figure above, I have calculated the month on month (monthly) inflation for all of the 733 items available in June and July. These have been ranked by the level of inflation expressed as a %. The highest monthly item inflation rate was 14.8% for ROADSIDE RECOVERY SERVICE; the lowest was -22.3% for MOBILE PHONE APPLICATIONS. The arithmetic average was -0.28%, with median 0.02%.

We can also look at the same distribution in Histogram form. There is clearly a skewness in the distribution (there is a big tail on the left), a high variance and standard deviation (the coefficient of variation is 0.36, indicating the variance is over one third of the mean). In addition to the “fat tails” there is also a dense middle, which explains the high (excess) Kurtosis figure. All of these stats are in the shaded box in Figure 1.

The actual CPI figure published by the ONS is a weighted sum of the item inflation rates (item weights being expenditure weights), and includes the “centrally collected” items not included in the published list. The monthly CPI inflation was -0.02% (the ONS publishes this as 0% because inflation statistics are published to just one decimal place.

However, the unweighted distribution does tell us a lot about the almost zero inflation observed. The median items were DOOR HANDLE-PACK FOR ONE DOOR and PORTABLE SPEAKER, which both experienced exactly 0.02% inflation. Just under half of the items showed monthly inflation in the range -0.74% and +0.45%. (the 306 item tall column in Figure 2). The NIESR inflation tracker looks at all of the over 100k published individual price quotes underlying the 733 price indices each month. For July, over 80% of prices were the same as in June, with no change month on month. Indeed, 48 out of 733 item indices indicated 0% monthly inflation.

Overall, July was like any month in the sense that there is a wide variation in price changes month on month. Some prices rise a lot and some fall a lot. The proportion of individual prices remaining unchanged was a about the same as average (81%). Looking at the item indices, 50% had a change of zero or less, 50% were strictly positive. However, the negative skewness of the monthly item inflation figures gives a mean of -0.28%, which is an annualised rate of -3.36%. The median at 0.02% is an annualised rate of just 0.24%. Thee were a lot more big falls than big increases in the data.

If we look above the item level to the COICOP expenditure categories, shown in Figure 3, we can also see how there is a fairly even balance of prices going up and down, with Transport the being the big positive outlier reflecting big increases in motor fuel from June to July. However, in 7 out of 12 categories, the inflation was negative.

However, note that the the number of items does not reflect the expenditure shares. Some types of expenditure have lots of items. The main one is Division 01, FOOD AND NON-ALCOHOLIC BEVERAGES (FNAB). The ONS collects many more food items relative to overall expenditure share. One might therefore expect this to mean that the item average and was lower than the CPI figure (since division 01 FNAB had -0.34% inflation). This is indeed the case (average item inflation was -0.28% as opposed to CPI of -0.02%).