What is CPI and how will it affect your mobile phone bill?
How does the Consumer Price Index measure the effect of inflation and how has that affected the cost of your mobile contract?
Picking the best mobile phone contract can be tricky at best and when terms like ‘CPI’ and ‘RPI’ get thrown into the mix, it can be very difficult to pin down exactly how much you’ll end up paying in the long term.
It’s common for phone companies to apply mid-contract price increases, linked to inflation, typically in April of each year and, while introductory tariffs are generally well-advertised, these price increases can be much harder to understand.
In this article, we’ll tell you everything you need to know about CPI and how it can affect your monthly payments. We also reached out to Ofcom and Uswitch, who provided us with some expert insight into the realities of CPI and the current debate surrounding it.
What is CPI?
Simply put, CPI stands for Consumer Price Index and it’s used to measure the inflation of consumer prices.
In the UK, the CPI is calculated by the Office for National Statistics. Essentially, the organisation looks at the changing prices of a selection of everyday goods and services – including groceries, clothing and fuel – and compares them to how much they cost in the year before. The result is a percentage figure, either an increase or decrease, that gives a useful overall impression of how inflation has affected the price of consumer goods.
Simrat Sharma is a mobile expert at Uswitch and tells us: “The Consumer Price Index is one of the most commonly used measures of inflation, and around 36 million mobile users are on deals with an annual percentage increase built into their contract.”
Many mobile network providers use this figure to calculate the annual price change of their phone contracts, typically adding their own fees on top. “Providers take different approaches to price rises, but most choose to base their annual increase on December’s CPI rate (4% in December 2024) plus an additional 3.9%”, Sharma explains.
For example, Three takes the CPI figure from December each year, plus their additional 3.9% charge, and adds this to your bill in April.
“For SIM and mobile customers, this is likely the main reason why they might have experienced a 7.9% bill increase around April, this year, when price rises traditionally kick in,” says Sharma.
Another commonly used statistic is RPI, which stands for Retail Price Index, and you might find that your mobile contract is affected by that figure, instead of the CPI. RPI is another percentage figure – again provided by the Office for National Statistics – that essentially measures the same thing as CPI; however, the main difference is that RPI also factors in mortgage interest payments. So, whereas CPI is unaffected by house prices, changes in the housing market can influence the RPI figure.
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Which networks currently apply mid-contract price rises?
Many of the UK’s most popular networks, including EE, O2, Vodafone, Three and iD Mobile, have already applied mid-contract price hikes this year. Most of these providers are using the CPI calculation plus 3.9%, and all of their price changes should have come into effect by 1 April 2024. There is some variance depending on when you took out your contract, so be sure to check your network provider’s website to be certain of the exact changes to your bill.
Some networks, including Giffgaff, Voxi, Asda Mobile, Tesco Mobile, Lebara, Lyca Mobile, Smarty and Talkmobile, have not announced any mid-contract price increases for 2024, often because these providers don’t offer long-term contracts.
Sky Mobile is an outlier. They applied a 3% price increase in February 2024 for users who are out of contract, while those still in contract saw no price change.
You can find the details on CPI for each of the major mobile phone networks right here:
How can you avoid CPI mobile phone price rises?
If you’ve been affected by mid-contract price increases then you’ll most likely find it stated within your contract terms that your network provider can increase their prices in line with inflation. This means that you’ll probably be stuck paying the higher rate for now, or else you’ll have to pay a penalty to terminate your contract early.
If you’re struggling to manage the higher prices, you should contact your network provider. You might find they will allow you to switch to a different – hopefully significantly cheaper – plan without having to pay the exit fee.
“For those that are part way through their contract, you should check if your provider allows you to exit without penalty. This can often be found within the listed terms and conditions. Even if there is an exit fee to change providers, this may still offer you a saving in the longer term, but you should weigh-up your decision based on personal circumstances”, suggests Sharma.
You may have to sacrifice some aspects of your current plan – accepting a smaller data allowance, for example – when you swap. However, if your provider is guilty of mid contract price rises, you might find yourself in the same position next April.
If you’re out of contract then you can easily switch to a different provider. Our Uswitch expert Simrat Sharma explains: “If you’re out of contract, you’re in a good position to make a saving right away, as you’re no longer tied to your contract and can avoid your provider’s price rises, if it has any.”
“Lots of providers have price freezes running until 2025 at the moment, and several also are now opting to not increase their prices at all. Lebara, Talkmobile, Smarty, Sky Mobile, Asda Mobile, Voxi and Honest Mobile are all good options to consider and have no price increases at the moment,” concludes Sharma.
We also recommend you check out our guide to the best mobile networks to see how they compare.
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Is Ofcom going to ban CPI price increases on mobile contracts?
Ofcom is the UK’s regulatory body for communications services, including broadband, landlines and mobile services. It has proposed a ban on inflation-linked mid-contract price rises and plans to announce its final decision sometime in 2024. Following the decision, any changes will likely not come into effect for another four months.
Simrat Sharma from Uswitch tells us: “Unfortunately, with inflation-linked price rises varying from a CPI of 7.9% this year, to as high as 17.3% in 2023, consumers have been unable to predict the scale of their bill change when they sign up for a deal. This has led the industry regulator, Ofcom, to take action and consult on banning inflation linked price increases.”
Dame Melanie Dawes, chief executive of Ofcom, told us: “Most people are left confused by the sheer complexity and unpredictability of inflation-linked price rise terms written into their contract, which undermines customers’ ability to shop around.”
If the proposed ban comes into effect, these types of contracts will go away entirely. Dawes said it will give customers “the clarity and certainty they need to secure the best deal for their needs and budget.”
Returning to Uswitch’s Simrat Sharma, she says: “A number of providers such as EE have already changed their pricing models to pounds and pence over percentage increases, and the regulator likely hopes that the pending decision will bring about greater transparency around how much consumers will pay.”
For now, the future of mid-contract price increases remains uncertain, but the proposed ban certainly seems like a win for mobile customers, so we’ve got our fingers crossed for some good news in the coming months.