Visualising UK inflation: three (interlinked) forces at work

[Note: since Medium doesn’t allow a sufficiently high-resolution picture to be uploaded, I’ve also provided a PDF file (which one can zoom into) here.]

UK’s annualised inflation rates hit another high in September 2022, as CPI (the consumer price index) increased by 10.1% and CPIH (a broader measure of inflation which also includes owner occupiers’ housing costs and council tax) went up by 8.8%. What’s going on?

It turns out there is no single, simple story. And, in such situations, data visualisations can help elucidate the underlying patterns. So, I’ve created a #dataisbeautiful chart which illustrates a few interesting things about inflation in the UK. [There could well be more than one pattern or analysis to draw from this data; if you have any suggestions, please send them my way!]

Let me explain the chart first, before highlighting some observations. Each row represents a month since January 2019; so reading down the chart gives you a sense of how things have changed over time. Each column represents an inflation band — the amount by which the price of a single item in the CPI consumer basket increased in one year. These bands range from negative on the left (where the prices of items decreased year-on-year) to very large positives on the right.

For example, taking the left-most, top-most cell in the chart, this belongs to items whose price decreased by between 45% and 46% (i.e., had increased by -46% to -45%) between January 2018 and January 2019. There are actually no items in that cell, but for example in May 2020 (further down the chart), the price of liquid fuels was 46% lower than the price in May 2019. Similarly, the bottom right hand cell shows items whose price increased by 128% to 129% between September 2021 and September 2022. Again, no actual items were in that bucket, but a bit further up the chart, in July 2022, prices of (our friend) liquid fuels had gone up by nearly 129%.

Finally, the size of each of the bubbles in the chart indicates how many items, and with what kind of weights in the CPI index, were in each inflation band in each month. There are 219 separate items in the index, and each has a weight between 1 and 100, indicating their importance in the average consumer basket of purchases. Across all items, the weights sum up to 1,000.

So, now, let’s zoom out of the detail and look at the visual pattern in the graph. Three distinct points — each contributing to the high inflation we are experiencing today — stand out:

1. In the last few months, hardly any items have decreased in price. In contrast, say, in 2020, part of the reason overall inflation stayed low (annual average CPI inflation was 0.9%) was because quite a few items, with a fair amount of weight, saw negative inflation.

2. The price of a number of items in the last year has increased dramatically. Up until October 2021, there were hardly any items whose price rose by more than 20% in a year. However, you can see the bubbles spreading out to the right, indicating that many items — including some higher-weighted ones (such as natural gas and electricity) — posted increases of more than 50% in a single year.

3. The bulk of items are now experiencing annual inflation of more than 3% a year. Previously, most items were bunched up in and around 0% to 3% inflation. In the last year or so, however, you can see the “centre of gravity” of the bubbles shifting to the right. In September 2022, 85% of all the items (by weight) had increased by more than 3% in price in the previous year.

If you squint really carefully, you can possibly see a fourth pattern: in the very last month plotted, it looks like some items are actually moving back towards the left hand side of the chart. The spread of items across the inflation buckets is wider than ever, but a material number (and weight) of items have shifted back to the 0%-3% range. This could be an indicator that inflationary pressures are abating for now.

However, we know that further increases are in the pipeline (e.g., for price of gas and electricity) and that the underlying global commodity markets remain volatile. Realistically, we might expect many ups and downs, as different forces pull in different directions and different times.