Key takeaways
– The Retail Price Index (RPI) is a UK measure of consumer price change first compiled in 1947. It is still published but is classed by the Office for National Statistics (ONS) as a “legacy” (non‑national) statistic.
– RPI differs from the Consumer Prices Index (CPI) in coverage, formula and population, and as a result typically reports a higher inflation rate than CPI.
– RPI remains important because many contracts, pensions, and some government financial instruments still reference it. However, CPI (or CPIH) is the preferred official inflation measure.
– Practical steps: locate the correct published index series and date, check whether your contract specifies RPI or another index, and apply the standard indexation formula (new payment = old payment × current index / base index).
What is the RPI?
The Retail Price Index (RPI) is a UK price index that measures changes in the cost of a fixed basket of goods and services over time. Introduced in the mid‑20th century, RPI combines a large number of price quotations for representative items to produce monthly and annual inflation figures. Historically, RPI was the main UK inflation statistic; since 2003 the Consumer Prices Index (CPI) has been the Bank of England’s target measure and the ONS regards RPI as a legacy measure and publishes it mainly because many legal or contractual arrangements still reference it.
How the RPI is constructed (brief overview)
– Basket and prices: RPI is based on a representative basket of items and thousands of price observations collected each month.
– Population coverage: RPI aims to reflect the spending patterns of private households (but uses a different population coverage than CPI — see the comparison below).
– Formula: The RPI’s calculation methodology differs from CPI’s at elementary aggregation levels. Those differences in averaging (the so‑called “formula effect”) tend to push RPI higher, especially when prices change unevenly among items.
– Publication: The ONS publishes monthly RPI series and associated methodology notes.
RPI vs CPI — the main differences
1. Scope and coverage
• RPI includes certain housing‑related costs (for example, mortgage interest payments and some council tax components) that are excluded from CPI. (Note: CPIH is a variant of CPI that includes an estimate of owner‑occupiers’ housing costs.)
• CPI covers a slightly broader population including some institutional and foreign visitors’ spending patterns; definitions differ between the two series.
2. Formula and aggregation
• CPI uses different averaging formulas (e.g., geometric means at some levels) that tend to give a lower measured inflation rate when price changes vary across items.
• RPI uses a different elementary aggregation approach that, through the “formula effect,” typically produces higher inflation numbers relative to CPI.
3. Use and status
• CPI (and CPIH) are the ONS’s preferred measures for policy and international comparison.
• RPI is still widely used in legacy contracts—wages, pensions, rents, index‑linked bonds, and some regulatory price adjustments—because the contract text names it.
Why RPI is considered a legacy measurement
– Methodology concerns: The RPI aggregation formula has been judged to be conceptually inconsistent with modern index number theory (it produces biased estimates relative to better‑specified indexes).
– Reclassification: In 2013 the ONS reclassified RPI as “not a national statistic.” The ONS continues to publish RPI because many contracts require it, but it no longer updates the underlying formula to align with newer index methods.
– Result: RPI is preserved primarily for continuity and contractual reasons rather than as the leading indicator for policy.
What is included in CPI (brief)
– CPI measures household goods and services costs but excludes some housing costs (notably mortgage interest payments).
– CPIH is a CPI variant that adds owner‑occupiers’ housing costs (OOH) and is often used when users want a CPI‑based measure that reflects housing cost movements.
– CPI is the UK’s headline measure for inflation targets and cross‑country comparison within the EU and OECD frameworks.
Example: RPI vs CPI in practice
– Because of differing coverage and formulas, RPI often reports higher inflation than CPI. For example, at points when housing costs and interest rates rise or when uneven price changes occur across categories, the RPI‑CPI gap widens.
– Numerical example (illustrative): If CPI shows 8.7% annual inflation and RPI shows 11.4% in the same month, someone with an RPI‑linked contract would see a larger indexed increase than someone linked to CPI.
Practical steps — how to use RPI correctly
1. Check what your contract or law specifies
• Step 1: Read the contract or statutory provision carefully. Does it specify “RPI,” “CPI,” “CPIH,” or “RPIH” (or simply “inflation”)?
• Step 2: If ambiguous, seek legal or professional advice before making adjustments — the specified index matters.
2. Locate the correct official series and dates
• Step 1: Go to the ONS website’s inflation and price indices pages (or use an authorised data provider).
• Step 2: Identify the exact series (for example, RPI monthly index, and the year/month used as the base).
• Step 3: Note whether the contract uses annual percentage change, 12‑month rolling figures, or a specific month‑to‑month index reference.
3. Apply the standard indexation formula
• Formula: New amount = Old amount × (Index at adjustment date / Index at base date)
• Example:
• Base rent = £1,000, base month RPI = 230.5
• Current RPI = 300.0
• New rent = £1,000 × (300.0 / 230.5) ≈ £1,302
• Use precisely the index values published by ONS for the relevant months.
4. Converting nominal series to real terms
• To express a nominal amount in real (inflation‑adjusted) terms:
• Real value (in base month prices) = Nominal amount × (Index_base / Index_current)
• This is useful for comparing purchasing power across periods.
5. Frequency, rounding, and partial periods
• Contracts may specify annual adjustments (often using the RPI published for a particular month). If adjusting for a partial year, check the contract or use pro‑rata methods.
• Clarify rounding rules (to nearest penny, £1, or percent) as specified.
6. Choosing which index to use in analysis or negotiation
• For policy analysis, forecasting, or comparison purposes, prefer CPI or CPIH because they are the ONS’s preferred and internationally comparable measures.
• For existing contracts that reference RPI, you generally must use RPI until the contract is formally changed.
• When negotiating future contracts, consider specifying CPI or CPIH if you want the official/modern measure, or define a clear bespoke indexation method.
7. Be aware of legal and financial implications
• Switching from RPI to CPI in long‑standing contracts can have winners and losers (often lowering increases if switching to CPI).
• When financial instruments (e.g., index‑linked securities) are tied to RPI, changes to usage can have wide market effects and may require legislative or contractual amendments.
The bottom line
RPI is an older UK consumer price measure still widely used in legacy contracts and some financial calculations. Because its coverage and formula differ from the ONS’s preferred CPI/CPIH measures, it usually reports higher inflation. Use RPI only where it is explicitly specified; otherwise, favor CPI or CPIH for official comparisons and policy analysis. When applying any indexation, follow a clear, documented procedure: confirm the index series and dates, apply the standard indexation formula, and check contract language and rounding rules.
References and further reading
– Office for National Statistics (ONS). Inflation and price indices.
– ONS. Retail price indices: methods and explanatory notes.
– UK Parliament — House of Commons Library. Measuring Inflation (Research briefing). /
– Investopedia. “Retail Price Index (RPI).” (Julie Bang).
Editor’s note: The following topics are reserved for upcoming updates and will be expanded with detailed examples and datasets.