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Economy in Brief

Oil Prices Largely Responsible for Small Rise in Inflation in the United Kingdom 
by Louise Curley November 16, 2004

Inflation in the UK continues to be well behaved. The official measure of inflation is the year-over-year percent change in the Consumer Price Index (CPI). In October, the inflation was 1.18%, up from the September rate of 1.09%, due largely to increases in gasoline and home heating oil.

The CPI was formerly called the Harmonized Index of Consumer Prices (HICP) and is based on the same methodology used by Eurostat to measure inflation; thus, it provides a measure of inflation that is directly comparable with the other members of the EU. Currently, at 1.2% inflation in the UK is well below that in the EU as a whole, which is running at about 2%.

The Retail Price Index was, for many years, the most widely quoted measure of inflation in the U. K. In the UK data base, Haver publishes data that explain the difference between inflation computed by the RPI and the CPI.

Before adopting the CPI, the Bank of England had used the Retail Price Index excluding Mortgage Interest Payments (RPIX) as its target, Inflation under this measure was generally 1 to 2 percentage points higher than that of the CPI, as shown in the attached chart.

U.K. Inflation Indicators Oct 04 Sep 04 Oct 03 Sep 03   Y/Y Oct Y/Y Sep  2003    2002    2001   
CPI (1996=100) 111.7 111.4 110.4 110.2 1.18 1.09 109.8 108.3 106.9
RPI (87=100) 188.6 188.1 182.6 183.5 3.29 3.07 181.3 176.2 173.3
RPIX (87=100) 185.1 184.7 181.2 181.3 2.10 1.88 180.0 175.1 171.3
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