UK inflation and labour market data

Three inflation measures, and what separates them 

The United Kingdom publishes more than one official inflation rate for the same month, and the differences between them are almost entirely about housing.

• CPI, the consumer prices index. Built to the European harmonised specification, so it excludes owner-occupied housing costs and council tax. This is the index on which the Bank of England's inflation target is defined, which makes it the number the monetary policy decision is measured against.
• CPIH, the consumer prices index including owner occupiers' housing costs. The same index with an estimate of owner-occupied housing added using rental equivalence, plus council tax. The Office for National Statistics designates this its lead measure of consumer price inflation, and market commentary largely ignores it in favour of CPI because CPI is the target measure.
• RPI, the retail prices index. An older measure with a different formula, a different population coverage and mortgage interest inside it. It lost its designation as a national statistic on methodological grounds, is no longer regarded by the statistical authority as a good measure of inflation, and remains embedded in index-linked gilts, some rail fares and a range of long-dated commercial contracts.

The persistence of the retail prices index is worth pausing on, because it illustrates a general property of statistics. An index that a statistical office has publicly disowned continues to be published, because instruments and contracts written decades ago reference it and cannot be unilaterally rewritten. A reform aligning its method with the newer measure has been legislated for a future date, which itself became a market event for holders of index-linked debt.

Administered energy prices and step changes 

United Kingdom domestic energy prices for most households are governed by a cap set by the energy regulator and reset on a published quarterly schedule. The cap is a maximum unit rate rather than a fixed bill, and it is recalculated from wholesale costs observed over a preceding window.

The consequence for the inflation series is structural. Because a large share of households move to a new tariff on the same day, the energy component of the index changes in discrete steps at known dates rather than drifting continuously. A large step entering or leaving the twelve-month comparison can move the annual rate substantially in a month where nothing else changed, and the timing is known in advance from the regulator's own calendar.

The services rate, and why it is watched 

Alongside the headline and the core rate, which excludes energy, food, alcohol and tobacco, the release carries a services inflation rate. Practitioners follow it closely on the reasoning that services prices are dominated by domestic labour costs rather than by imported goods prices or global energy, and are therefore the component most informative about whether inflation has become embedded in domestic wage and price setting.

The services measure carries its own quirks. It includes administered and indexed prices, some of which are uprated once a year by formula against a lagged inflation reading, so a portion of the series is a mechanical echo of past inflation rather than a current signal. Airfares and package holidays inside it are extremely volatile and are collected on dates that interact awkwardly with school holiday timing.

The labour market release and its measurement problem 

The monthly labour market overview combines several sources with quite different reliability. The unemployment rate, the employment rate, the inactivity rate and average weekly earnings come from the Labour Force Survey, a rolling household survey. The claimant count comes from benefit administration records. And a separate payrolled employees series is derived from the tax system's real time information, which covers nearly the entire population of employees rather than a sample.

The Labour Force Survey has experienced a sustained fall in response rates, to the point that the statistical authority itself has published warnings about the reliability of the headline rates derived from it, has suspended and reinstated the series, and has been running a redesigned survey to replace it. This is unusual and it is openly documented. The practical consequence is that the most quoted labour market statistic in the country carries an official caveat about its own precision, and that analysts weight the near-census payroll count more heavily than its position in the release would suggest.

Average weekly earnings is published in two forms, including and excluding bonuses, and as a three-month average against the same three months a year earlier. The three-month averaging smooths the series and also delays it, so a turning point in pay growth appears in the published figure later than it occurred. Bonus timing shifts between months and can move the including-bonus measure without any change in regular pay.

Cadence and sequencing 

Both releases are monthly and both are published early in the morning London time, which places them before the European session opens rather than during it. The labour market overview conventionally precedes the inflation release by a week, and the pair are followed by the monthly output and trade figures, so a single fortnight carries most of the month's macroeconomic information for sterling.

The Office for National Statistics publishes its release calendar a year in advance, along with the methodology documents and the quality caveats for each series. The caveats are not buried: they appear in the bulletins themselves, which is why the survey's difficulties are widely known rather than a specialist matter.