Read the index level first
Annual inflation compares an index with its level twelve months earlier. In a simplified example, the index stands at 100 in April and 105 in May of year one. It stays at 110 in both April and May of year two. Annual inflation falls from 10.0% to roughly 4.8% between those two reports. Prices did not fall during the latest month. The change reflects the higher denominator that rolled into the annual comparison.
Then inspect the weights
The harmonised index of consumer prices combines categories with expenditure weights and links the index across years. A high price increase for an item with a small weight need not dominate the overall result. Holding weights and all other prices fixed, a category with a 10% share rising 5% from the link period adds about half a percentage point to the simplified basket. Multiplying an annual category change by the latest weight alone is not an exact decomposition of published annual inflation.
Translate cautiously into sector research
A retailer selling mainly food faces a different customer budget from a supplier of discretionary goods. Compare the relevant category price and its weight, then look separately at quantities and mix. An increase in the recorded price level says nothing by itself about a retailer’s gross margin, private discounts or the price paid by a particular household. For a cross-country comparison, keep the index definition and reference month identical.
Practical check
Show the current index, its twelve-month comparison and the relevant basket weight beside the headline rate.