UK CPIH inflation, which the Office for National Statistics will next month adopt as its “headline” measure, rose to 2.0% in January versus CPI inflation of 1.8% – up from 1.7% and 1.6% respectively in December. CPIH includes owner-occupiers’ housing costs, which rose by 2.5% in the year to January. Chancellor Philip Hammond is due to update the Monetary Policy Committee’s remit next month and it would be surprising and potentially confusing if he did not switch the 2% target from CPI to CPIH.

Such a change would probably have neutral or even dovish monetary policy implications. While CPIH inflation is above the CPI measure currently, this may not be the case later in 2017 – CPI inflation is expected here to move above 3% while owner-occupiers’ housing costs may continue to rise by about 2.5% per annum, and could even slow (as they are measured using the “rental equivalence” approach and actual rents increased by only 1.2% in the year to January). CPIH inflation was below CPI inflation between June 2008 and May 2014 – see chart.


The rise in CPIH / CPI inflation in January was tempered by a fall in clothing / footwear inflation from 1.2% in December to zero. This reflected a sales timing effect and should be reversed swiftly – clothing / footwear import prices rose by 6% in the year to December.

The expectation here is that “core” CPI inflation – excluding energy, food, alcohol and tobacco – will move up from 1.6% in January to about 2% by the summer, while stronger energy and food prices will drive the CPI / core CPI inflation wedge above 1 percentage points, resulting in a 3% plus CPI rate.