CPI v RPI

Tarana Uddin
Trainee Paraplanner

In comparing CPI (Consumer Price Index) and RPI (Retail Price Index) for measuring inflation, both indices measure the average change in prices of consumer goods and services. However, CPI has a broader focus on various consumer expenses, while RPI encompasses housing costs including mortgage interest payments, house depreciation and building insurance.

CPI is the primary measure of inflation in the UK, driven by a methodological approach. Regarded as more modern, CPI adheres to international standards, allowing seamless global comparisons. It effectively adapts to changes in consumer behaviour, excluding specific housing costs included in RPI.

Housing costs, especially mortgage interest payments, exhibit volatility influenced by factors distinct from general price movements. Through the isolation of core inflation by excluding housing costs, policy makers achieve a more stable and transparent indicator. This refined focus provides clearer insights into underlying inflationary trends, enhancing precision in economic analysis and policy formulation.

In essence, the preference for CPI in the UK encapsulates a commitment to modernity and international comparability. By embracing a broader range of consumer expenses and excluding certain housing costs, CPI becomes a versatile tool for policymakers and investors alike.

With the current CPI at 4%, the significance of this inflation rate underscores the relevance of procedural distinctions discussed. Inflation is forecast to fall further in the following year, with CPI inflation expected to average 2.1%, which is consistent with the overall 2% target.

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