Five Questions About: Inflation measures

 

Simon Read
Friday 11 January 2013 21:00 GMT
Comments

Your support helps us to tell the story

From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.

At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.

The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.

Your support makes all the difference.

I'm totally confused. What's the real measure of inflation?

Everyone's confused. Most people remember the Retail Prices Index (RPI) which was used as the official measure of inflation from 1947. You may know that it was replaced as the official measure by the Consumer Prices Index (CPI) which has been published since 1996.

What's the difference?

Both use a basket of costs to work out the effect of inflation but the CPI excludes house prices. CPI is also worked out using a different formula which effectively means it will always rise more slowly than the RPI.

Does that matter?

Inflation measures are important as they are used to work out how much pensions and benefits rise, as well as other things, such as the annual increase in the ISA allowance.

So they affect us all?

Yes. And because the Government uses the lower CPI index, increases are less than they would have been in the RPI was still used.

Why are they in the news this week?

Because the National Statistician has been considering whether to change the measures, which could have been disastrous for pensioners. She didn't, but has introduced a new version of RPI, known as the RPIJ, which uses the same calculation methods as CPI leaving us even more confused.

Join our commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies

Comments

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in