Introduction to the RPI and CPI
The rate of inflation is measured by monitoring prices for goods and services. The rates derived from these figures are known as price indices and are used for assessing tax allowances, wages, state benefits and pensions.
Retail Prices Index (RPI)
The RPI is the most well-known measure of inflation in the UK. It monitors the monthly change in prices of goods and services used by most households. The RPI was preceded by the Cost of Living Index from 1914 - 1947 and the Interim Index of Retail Prices from 1947 - 1956. In an attempt to simplify matters, many publications collectively refer to these as the RPI and give the date range 1914 - 2000.
When looking at historical statistics, note that the RPI moved to a base point of 100 in January 1987. Some listings of the RPI use the original figures but others may have been converted retrospectively to the 1987 base.
There are other indices derived from RPI that are used for specific purposes, including:
- RPIX, excluding mortgage repayments - formerly used as the base for the UK Inflation target
- RPIY, excluding mortgage repayments and indirect taxes (VAT, council tax, duties vehicle excise duty, insurance tax and air passenger duty)
- Tax and Price Index
In his Pre-Budget Report of 10 December 2003 the Chancellor of the Exchequer announced the UK Inflation target would change from one based on RPIX to one based on the Consumer Price Index (CPI).
In 2013, the RPI and its derivatives were found not to meet the required standards for National Statistics. More information on this decision is available from the UK Statistics Authority.
Consumer Prices Index (CPI)
The CPI is the main UK measure of inflation. It was known as the UK Harmonised Index of Consumer prices (HICP) until 10 December 2003, when the Chancellor announced in his Pre-Budget Report that the UK inflation target would be changed to one based on the CPI. The new inflation target was set at 2 per cent but all other aspects of the framework remained the same; the CPI and the HICP are the same index. This was set out in the New Inflation Target letter from the Chancellor to the Governor of the Bank of England.
Harmonised Index of Consumer Prices (HICPs)
The Harmonised Index of Consumer Prices (HICPs) was developed in 1997 for the purpose of international comparisons. This was a convergence measure required by the Maastricht Treaty in preparation for European monetary union. Separate HICPs are produced in each EU member state according to a set of rules developed by Eurostat. HICPs replaced the Interim Indices of Consumer Prices that were published previously.
The HICP is now known in the UK as the Consumer Price Index (CPI). However, it is still published as the UK HICP by Eurostat.
What do the RPI and the CPI measure?
Both the RPI and CPI are based on the price of a 'basket' of goods and services purchased by a typical UK household. The basket is revised each year to reflect changes in consumer spending habits. It includes a range of expenses from council tax to washing powder, but broadly covers the following groups:
- Alcoholic drink (off sales) and tobacco
- Clothing and footware
- Housing, fuel and light
- Household goods and domestic services
- Personal goods and services (health related)
- Motoring expenditure, fares and other travel costs
- Leisure goods and services
- Catering and alcoholic drink (on sales)
- Personal goods and services (non-health related)
Details of the goods and services used to compile the RPI and CPI are published by the ONS.
How are the figures calculated?
Each month, the ONS records around 100,000 prices for over 500 goods and services. Changes in price are monitored by comparing the price each month to the price level in the base month of the previous January. Prices are then aggregated into the published sections and then re-scaled to a reference point of January 1987. This enables the price change to be compared to the year before (the annual inflation rate) and all previous years.
The ONS publishes detailed guides to the methodology used for the indices.
Where and is the data published?
The figures are published every month in the ONS Consumer Price Inflation bulletin.
What are the differences between the RPI and the CPI?
The CPI is based on a common European standard, so the prices it uses differ slightly from those used for the RPI. The two indices are also calculated differently. Notably, the RPI aggregates prices at the low end of the spectrum based on the arithmetic mean; the CPI predominantly uses the geometric mean.
The ONS publication History and differences between the CPI and RPI provides a good summary of the similarities and differences.
Articles and books about the RPI/CPI
The Library collection holds a range of books and journal articles on the price indices.
To find out how you can borrow books from the Library please see our guide to book loans.
You can obtain copies of articles or extracts of books and reports through our document supply service.
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