what does rpi vs cpi inflation mean?

bobwilson

yes i know what they stand for but what do they mean?

Lokolo

RPI is based upon a number of consumer goods.

CPI is based upon a number of consumer goods, plus house prices and I think a couple of other things.

gozomark

its not just whats included, but the method of calculation - from memory, CPI allows for consumer substitution whilst RPI doesn't (price of bananas doubles so consumers switch to eating apples) - RPI tends to be 0.5% higher than CPI due to different method of calculation, and why BoE target was cut from 2.5% to 2% when its target measure switched from RPI to CPI - CPI is the internationally accepted standard

TrickyDicky101

I don't think either CPI or RPI takes account of House Prices, but RPI does include mortgage interest

Lokolo

TrickyDicky101 wrote: »

I don't think either CPI or RPI takes account of House Prices, but RPI does include mortgage interest

Yes sorry other way around.

http://www.statistics.gov.uk/downloads/theme_economy/cpi-rpi-information-note.pdf


The RPI covers a range of costs excluded from the CPI, including:
• Mortgage interest payments
(MIPs)
• Council tax
• House depreciation
• Buildings insurance
• House purchase costs, e.g.
estate agent fees
• TV licence
• Road fund licence
• Trades union subscription


The CPI covers certain charges and fees excluded from the RPI, including:
• Stockbroker fees
• University accommodation
fees
• Foreign student tuition fees
• Unit trust fee

Sceptic001

bobwilson wrote: »

yes i know what they stand for but what do they mean?

bobwilson, Google is a wonderful thing. Google "CPI RPI difference" and hey presto, top of the list comes this:
http://www.statistics.gov.uk/downloads/theme_economy/cpi-rpi-information-note.pdf

Enjoy.

bobwilson

Sceptic001 wrote: »

bobwilson, Google is a wonderful thing. Google "CPI RPI difference" and hey presto, top of the list comes this:
http://www.statistics.gov.uk/downloads/theme_economy/cpi-rpi-information-note.pdf

Enjoy.

yes but not everyone thinks of the same search terms. I searched for RPI on its own and CPI on its own, also searched for define: CPI and define: RPI and came up with nothing, also searched govmnt page on inflation and nothing. don't assume just because someone posts here that they didn't google search

King_Weasel

By far the biggest difference between the indices is the method of calculation, not the items they include. The RPI uses an arithmetic method, which is a straightforward weighting system. The CPI uses a geometric method and to my mind understates the changes. No wonder the Government prefers it.

talexuser

to be cynical, CPI was an index the government invented to prefer when RPI was high as it is generally lower and thus can be used for lower pension/benefit/wage negotioation increases

Totton

Not cynical at all, just look at how they are still using one to pay out and the other to justify their taxes. Now I wonder which one is used to calculate MP's expenses :-)

gozomark

talexuser wrote: »

to be cynical, CPI was an index the government invented to prefer when RPI was high as it is generally lower and thus can be used for lower pension/benefit/wage negotioation increases

CPI is the international standard - it wasn't invented by the govt

CPI has a better methodology than RPI