Essentials Inflation Index
June 2016: -0.6%
The Economic Research Council’s Essentials Inflation Index fell by -0.6% in June 2016 compared to June 2015, for the third month in a row.
The official CPI rate of inflation increased to +0.5% in June, opening up the gap between the official rate of inflation and our essentials index to the largest it has been in absolute terms for at least the past ten years.
For the third month in a row, the biggest deflationary pressures continued to come from falling prices of utilities (electricity and gas), which fell by -3.4%, food (-3.3%), and the operation of personal transport equipment (-1.1%). Falling prices in these categories reflect the continuing low price of two of the key staples: oil and food.
Similarly, it was the same three categories that continued to put an upward pressure on the cost of living: rent (which increased by 1.8% according to the ONS inflation data), clothing, and medical items.
Over the past ten years, the cost of a representative basket of essential items has grown by less than a quarter – if they cost £100 in June 2006, they would cost £123.53 today. However, most of that price growth occurred between 2006 and 2012; since then, prices have been relatively stable and then falling.
This is slightly less than the official measure of inflation, the Consumer Price Index (CPI), which has grown by 25.7% over the same period, and much less than the unofficial Retail Price Index (32.5%).
What is the Essentials Inflation Index?
The Office for National Statistics publishes monthly data on the movements of the official measure of inflation – the Consumer Price Index – which is based on a basket of goods bought by the “average consumer”. While this is a good general measure of inflation in the economy, by trying to include everything it does not reflect the changes in the most basic cost of living. Our Essentials Inflation Index, which is based on ONS data, is a way of measuring price movements of purchases that are unavoidable: food and drink, clothing, housing (both rent and basic upkeep), utilities, and basic transportation costs.
This is an important economic measure because these costs have an impact on economic equality. These items make up a bigger proportion of a poorer family’s budget than a richer family’s, and are harder to cut back on when times are tough, so those with less income will be more affected by price changes of these essentials. When the Essentials Inflation Index grows faster than the CPI, poorer households will have disproportionately less money to spend on non-essential items (leisure activities, luxury items, or savings), and vice versa.
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