CPI and RPI are indices used to measure inflation in UK. CPI is Consumer Price Index, also called Harmonized Index of Consumer Prices (HICP). RPI is the Retail Price Index which measures change in prices of a basket of goods and services over a period of time.
RPI
RPI was devised to calculate the effect of rising prices in the aftermath of World War II in 1947. For years it remained as the principle tool or devise to calculate inflation rate in the country until it was overtaken by CPI in importance, However, RPI is still published in the media. The government still makes use of RPI to make suitable changes in pensions, amount of money that is paid on securities that are linked with these indices, and also to increase or decrease rents of social housing. RPI is also used by many employers to fix wages of employees.
CPI
The CPI is the average increase in price as a percentage for a group of commodities, including services (more than 600). Every month the prices of these goods and services are checked at more than 12000 retail outlets across the country. CPI is calculated every month and is published by the Office for National Statistics.
Difference between CPI and RPI
Talking of differences, RPI is considered by many as broader index of the two as it includes a larger number of goods and services than CPI. Some examples of items included in RPI that are not found in CPI are interest payments on mortgages, insurance of buildings and depreciation of houses. Similarly, CPI takes into account financial transactions such as fees of stockbrokers but it is not considered in RPI.
Whenever there are changes in mortgage interest rates, there is a fluctuation in RPI. For example, if there is a cut in interest rate, it reduces interest payments thus causing a fall in RPI but CPI remains unaffected.
RPI also includes council tax and some other housing costs that are not considered in calculating CPI.
A wider sample of population is taken in CPI to work out weights.
Normally, CPI tends to be lower than RPI.
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Summary • CPI and RPI are tools or indices to measure inflation in UK. • While RPI is older, having been introduced in 1947, CPI is relatively new but holds more importance as of today. • CPI is normally lower than RPI. |