Retail Prices Index (United Kingdom) - Calculation

Calculation

The United Kingdom RPI is constructed as follows:

1. A base year or starting point is chosen. This becomes the standard against which price changes are measured.
2. A list of items bought by an average family is drawn up. This is facilitated by the Living Costs and Food Survey.
3. A set of weights are calculated, showing the relative importance of the items in the average family budget - the greater the share of the average household bill, the greater the weight.
4. The price of each item is multiplied by the weight, adjusting the item's size in proportion to its importance.
5. The price of each item must be found in both the base year and the year of comparison (or month).

This enables the percentage change to be calculated over the desired time period.

In practice the comparison is made over shorter periods, and the weights are frequently reassessed. Detailed information is published on the Office for National Statistics website.

The following items are not included in the CPI: Council tax, mortgage interest payments, house depreciation, buildings insurance, ground rent, solar PV feed in tariffs and other house purchase cost such as estate agents' and conveyancing fees.

CPI is usually lower, though this is due more to the differences in the calculation formulas for the indices than to the differences in coverage. The UK Government announced in the June 2010 budget that CPI would be used in place of RPI for uprating of some benefits with effect from April 2011.

Regarding State Pensions the UK Government confirmed in their autumn statement in 2011 that these would go up by the greater of the CPI, the RPI, or 2.5%.

The variability of the change in RPI is shown in the graph on the right. This was one of the arguments used in favour of changing to RPIX.