Retail Price Index - History

History

RPI was first calculated for June 1947. It was once the principal official measure of inflation. It has been superseded in that regard by the CPI - Consumer Price Index.

The RPI is still used by the government as a base for various purposes, such as the amounts payable on index-linked securities including index-linked gilts, and social housing rent increases. Many employers also use it as a starting point in wage negotiation. It is no longer used by the government as the basis for the indexation of the pensions of its former employees. The UK state pension (at 2012) is indexed by the higher of RPI, CPI or 2.5%.

The highest annual average inflation since the introduction of the RPI came in 1975, when inflation touched 25% for that year. Indeed, the reading for June 1975 showed an increase in retail prices on an annual basis of 26.9% from a year earlier. By 1978 it had fallen to less than 10%, but rose again towards 20% over the following two years before the monetarist economic policies of the Conservative government led by Margaret Thatcher (elected in 1979) brought inflation down. By 1982, it had fallen below 10% and a year later was down to 4%, remamining low for several years until approaching double figures again by 1990. Aided by a recession in the early 1990s, increased interest rates brought inflation down again to an even lower level.

In March 2009, the change in RPI measured over a 12-month period turned negative, indicating an overall annual reduction in prices, for the first time since 1960. The change in RPI in the 12 months ending in April 2009, at -1.2%, was the lowest since records began in 1948.

Housing associations lobbied the government to allow them to freeze rents at current levels rather than reduce them in line with the RPI, but the Treasury concluded that rents should follow RPI down as far as -2%, leading to savings in housing benefit.

In February 2011, the RPI jumped to 5.1% putting pressure on the Bank of England to raise interest rates despite disappointing projected GDP growth of only 1.6% in 2011. The September 2011 figure of 5.6%, the highest for twenty years, was described by the Daily Telegraph as "shockingly bad".