Retail Price Index
The Retail Price Index (RPI) is a measure of the average change in prices paid by the public for goods and services – or in the words of the Office for National Statistics (ONS), “a measure of inflation”. In a nutshell, higher RPI-relate d prices suggest people are paying more for goods and services over time.
The Retail Price Index is an important statistical measure of inflation in the United Kingdom and is used by the government in a variety of calculations, such as calculating benefits, wages and pensions. It is also used by the Bank of England and other organisations to measure the change in the cost of living.
RPI is calculated by looking at the prices of a wide variety of goods and services at a number of different stores. The ONS constantly surveys more than 1,000 different items sold in shops across the country, from canned goods to furniture to services. These prices are then compared month-on-month to get an idea of how prices are changing in the overall market.
When it comes to calculating inflation, RPI is not the only measure that is used. The Consumer Price Index (CPI) is another measure of inflation and has in some ways replaced the RPI as the primary measure of inflation in the UK. The CPI is based on a ‘basket of goods’ and it looks at a subset of goods and services that households purchase frequently. The CPI is considered to be a more accurate measure of inflation than the RPI because it is more representative of what people actually buy and it takes seasonal variations into account. For example, fresh fruit and vegetables are likely to be cheaper in the summer than in winter and the CPI takes this into account.
The RPI, on the other hand, takes all goods and services into account, including housing costs, and it is not a weighted measure. This means that it gives more weight to higher priced items and some people argue that this doesn’t accurately reflect the average household’s experience.
However, the RPI continues to be used in some parts of the UK economy, especially in areas where wages and benefits are linked to it. For example, some employers apply an RPI-linked formula to the wages of their employees. This means that if prices are increasing, the employees will receive a wage increase to reflect this.
Overall, the Retail Price Index is a useful measure of inflation and gives an indication of how prices are changing across the UK economy. It is not, however, the only measure of inflation and in some parts of the economy, it is being superseded by the Consumer Price Index. Nevertheless, it continues to be an important statistical measure of inflation in the UK.
