Guide to
Calculating The RPI More FAQs on the most
familar measure of inflation How is the RPI
calculated? The Retail Prices Index (RPI) is often described in
terms of a shopping basket containing some 650 goods and services, chosen
as indicators of price movements for a range of similar items. Taking
bread as an example, several different types of bread are priced (e.g.
large white loaves (sliced and unsliced), small brown loaf, large
wholemeal loaf, bread rolls, pitta bread and french stick/baguette). These
are considered as representative of the majority of bread consumption by
most households.
Each price collector collects the price of a
representative item (e.g. brand) for that price indicator in January and
exactly the same item/ brand must be priced every month for a period of
thirteen months. Each month price indices are constructed comparing the
latest price with the price in the base month (January).
Finally
price indices for price indicators are aggregated to items and then to
sections which is the published level and rescaled to a reference point of
January 1987=100. This allows price changes to be compared to a year
earlier (i.e. the annual inflation rate) and to previous
years.
How is it published? Every month data is published
on either the second or third Tuesday in a month (depending on the month)
in a Consumer Price Indices First Release along with Additional Briefing
Notes, which give the stories behind the figures. Data is also published
in the electronic publication Focus on Consumer Prices available on the
National Statistics website.
How often are the components
reviewed? The Office for National Statistics reviews the components
of the RPI once every year, to keep it as up to date as possible,
reflecting changes in consumers' preferences and the establishment of new
products. Each year the changes are announced in a News Release and
published in an article.
What are the origins of the
RPI? Although there were occasional official comparisons of prices
for food in the nineteenth and early twentieth century, the Government
first began a systematic, continuous check on the increase of the cost of
living in 1914, but the coverage was very limited. After the Second World
War a cost of living Advisory Committee was set up and an experimental
price index known as the Interim Index of Retail Prices ran from 1947 to
1956. In January 1956, the first official Retail Prices Index began with
various methodological changes implemented since then following reviews by
RPI Advisory Committees. The latest Advisory Committees met in the early
1990s and made recommendations about the treatment of housing costs,
holidays and car prices.
Why are there several different
versions of the RPI? No single inflation measure can meet all
users' needs, so in addition to the all items RPI figure, the Office for
National Statistics also publishes other inflation measures based on the
RPI. These include:
- RPIX, which excludes mortgage interest
payments;
- RPIY, which excludes mortgage interest rates and
indirect taxes (VAT, council tax, duties vehicle excise duty, insurance
tax and air passenger duty);
- Quarterly Pensioner Indices, which
use the same price data as RPI, weighted for the typical spending of one
and two-pensioner households and excluding items such as school dinners,
work place canteen meals and housing; and the
- Tax and Price
Index, which measures how much the average person's gross income needs to
change to purchase the RPI basket after allowing for the average amount of
income tax and national insurance paid on earnings.
In addition to
these, there is the Consumer prices index (CPI) which is the government's
inflation target, and is also used for international comparison. The CPI
was previously published in the UK as the harmonised index of consumer
prices (HICP).
Produced by Office for National Statistics
Published on 10 December 2003
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