Major adjustments to the UK inflation basket! Non-alcoholic beer and hummus included due to healthy consumption trends, price monitoring enters the era of big data.

The UK Office for National Statistics has made the latest adjustments to the inflation basket. The UK Office for National Statistics stated on Monday that as shoppers prioritize healthier lifestyles, non-alcoholic beer has been included in the list of goods used to measure inflation in the UK, and different categories of wine have been combined into one category. The agency also added that they will begin tracking the price of hummus, as vegetables (including processed vegetable products) are underrepresented in the existing statistics. These updates are part of the annual assessment by the UK Office for National Statistics of the items used to calculate inflation. It is reported that the UK Consumer Price Index is based on the costs of over 750 goods and services, with adjustments made annually to reflect changes in lifestyle and technological applications. Stephen Burgess, Deputy Director of Prices at the UK Office for National Statistics, said, "This year, the choice of healthier lifestyles is influencing consumer spending, which is reflected in the inclusion of items such as hummus and non-alcoholic beer." Other new items include croissants, motorhomes, international rail fares, dashcams, pay-TV subscriptions, and pet grooming services. They will be included for the first time in the inflation data for February, due to be released on March 25. Additionally, packaging paper (replaced by the more popular roll packaging paper) has been removed from the inflation basket this year, and the measurement method for hotel prices will also change to reduce volatility. The statistical agency will also introduce supermarket scanner data collection, covering over half of the grocery market, while the remaining half of the data will still be manually collected by staff in physical stores and online channels. This change means that "thousands of manually collected price points will be replaced by millions of prices automatically collected at supermarket checkouts," significantly improving the accuracy and timeliness of inflation data collection. Inflation risks intensify, and the Bank of England is expected to remain on hold this week Although the UK inflation rate dropped to 3.0% in January, a near one-year low, concerns about a resurgence in inflation have been raised due to the surge in energy prices caused by the conflict in the Middle East. The adjustments to the inflation basket come at this sensitive time, providing a more accurate benchmark for measuring changes in the cost of living. According to estimates released last week by ING and RSM UK, if the recent rise in oil and gas prices is sustained, the UK inflation rate could rise to more than twice the Bank of England's 2% target. James Smith, economist at ING, stated that if oil prices continue to rise in the second quarter, the inflation rate could reach 4.7% by September. Tom Pugh, economist at RSM UK, estimated that it could lead to an inflation rate between 4.5% and 5%. Since the summer of 2024, the Bank of England's Monetary Policy Committee has gradually reduced interest rates from a peak of 5.25% to 3.75% as the inflation threat eased. With the Bank of England facing the prospect of inflation rebounding to as high as 5%, traders are increasing bets on a possible reversal of recent rate cuts by the Bank of England. Before the US and Israel's attacks on Iran, the market expected the Bank of England to cut interest rates twice by 25 basis points each this year, reducing rates to 3.25%, with an 80% probability of a rate cut at the policy meeting on March 19. Prior to the outbreak of the conflict in the Middle East, the Bank of England expected the inflation rate to fall to the 2% target level in the spring. Now, the market expects the Bank of England not to cut rates again this year, with some even incorporating a 60% probability of a rate hike. For the policy meeting scheduled for this week, the market currently anticipates that the Bank of England will delay cutting interest rates, with its wording being more cautious than before. The Bank of England still has lingering concerns about the inflation rate exceeding 11% in the UK in 2022 due to the Russia-Ukraine war, with critics arguing that the Bank of England and other central banks reacted too slowly, so the Bank of England will remain vigilant against any mistakes. Bank of England Governor Bailey and his colleagues can only wait to see how long the US-Israel war with Iran will last and how long the increase in oil and gas prices will continue. This means that the market's previous expectation for a rate cut at the end of the March monetary policy committee meeting (on Thursday) has now been dashed. Furthermore, the level of uncertainty suggests that the Bank of England may change its guidance on borrowing costs. In the first two meetings, the Monetary Policy Committee stated that rates may fall further "based on the current evidence". Analysts at Barclays Bank believe the Bank of England may now abandon this statement and instead emphasize another part of its guidance, that "the degree and timing of further monetary policy easing will depend on the development of the inflation outlook."