Retail price index (RPI)

We begin by exploring the retail price index or RPI. The RPI measures inflation by tracking changes in the prices of a fixed basket of goods and services purchased by households over time. Introduced in the UK in 1947, the RPI has long been a key economic indicator for showing shifts in the cost of living. Although it's no longer the main headline inflation measure in the UK, it remains important for wage negotiations, pensions, and some contracts. It's important to understand what the RPI includes and how it differs from other price indices. Calculating the RPI involves tracking the prices of hundreds of everyday items, grouped into categories like food, housing, transport, and leisure. These items reflect typical household spending with each category weighted by its share of expenditure. For instance, housing costs may carry more weight than entertainment. Statisticians record prices regularly in shops nationwide and compare the basket's current cost to a base year, producing an index number. The RPI, unlike the CPI, also includes certain housing costs. The retail price Index remains relevant due to its historical use and distinct methodology in the United Kingdom. Unlike the consumer price index, the retail price index includes mortgage interest payments and counsel tax, making it more sensitive to changes in interest rates and housing policies. The retail price index uses an arithmetic mean, while the consumer price index uses a geometric mean, often resulting in the retail price index