After more than two and a half years where the upward pressure on inflation was coming from Energy Products and Mortgage Interest, the past few months have seen the overall inflation rate and the core inflation rate converge (while also increasing).
Core inflation is measured by excluding the impact of energy products and mortgage interest from the overall CPI. These account for 17% of the overall CPI basket so ‘core’ inflation here is the remaining 83%. It can be seen below that this measure of inflation is now running at its highest rate since the start of 2009.
In August both overall inflation rate was 2.0% per annum with the core rate just above this. The Energy Products category recorded 10% inflation over the past twelve months while Mortgage Interest in the CPI is now 13% lower than it was this time last year (this followed from Mario Draghi’s almost immediate decisions to reverse the 0.5 percentage points of interest rate increases introduced by Jean Claude Trichet in the summer of 2011). The weights for energy products (11.4%) and mortgage interest (5.6%) in the CPI basket of goods means that the inflation rate for these combined is equal to 1.8%.
So what is pushing up the rate of inflation. Here is table from the CPI Detailed Sub-Indices release with categories that have a CPI weight greater than 0.25% and an annual inflation rate greater than 2.5% (fruit and vegetable juices ‘passed by compensation’ to meet the entry criteria).
An equivalent table with inflation rates of –2.5% or lower is below the fold.
This time telephone services and other personal effects bounced in off the post (either one) and it can be seen that the total weight of items with in this table of falling prices is one-third less than in the table of rising prices.Tweet