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In trying to find annual inflation for the UK, I came across this page:

http://www.rateinflation.com/inflation-rate/uk-historical-inflation-rate

I don't see how the annual inflation rate to the right makes sense with respect to the monthly inflation rates. For example, take a look at inflation for the year 2014: Inflation rate table

Even if we just look at the 2% rate for January, how can the annual rate to the right be lower than that? The cumulative rates of all the months combined should take it way higher than 2%.

What am I missing?

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To understand this chart you need to see the underlying numbers from the Consumer Price Index The number for January 2014 is:

((CPI Jan14) - (CPI Jan13)) / (CPI Jan14)

That's supposed to reflect the inflation in the twelve months prior to Jan14. The same calculation is done in each month. The annual column represents the same calculation but substituting the average CPI for all months of the year instead of the CPI of the individual months.

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  • Even that's not quite right, though, is it? Because that 2% would be compounded each month and result in more than 2% for the year. – Jez Jan 24 '17 at 15:48
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    No, they're not annualised rates, they're actual annual rates. The January 2014 figure is the rate for the 12 months from January 2013 to January 2014, the February 2014 figure is for February 2013 to February 2014, and so on. – Mike Scott Jan 24 '17 at 16:01
  • @MikeScott - I edited my answer to reflect the underlying CPI numbers and the calculation they used. – Nathan L Jan 24 '17 at 16:53
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The comparison is of the CPI of January 2014 to Jan 2015, this gives you the inflation for Jan 2015 ... Like wise for other months.

For example CPI in Jan 2013 was 97.1 and 99 in Jan 2014. Hence inflation in Jan 2014 is 2%

The explanation is in below para from same page

Inflation Rate data for the UK is available from 1988 onward. Year over Year compares the growth rate of the CPI from one period to the same period a year earlier. See United Kingdom Historical Consumer Price Index (CPI).

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