The UK Retail Price Index: Broken, Inaccurate and Unfair
Calculating price indexes that are theoretically sound, robust, comprehensive, easy to understand, and which reflect underlying reality is one of the hardest tasks in economics. Most measures of domestic inflation have flaws, but perhaps the least fit for purpose is the Retail Price Index (RPI) used in Britain. In official use since 1956 the RPI is calculated in a different way from the alternative Consumer Price Index (CPI) in use since 1996. RPI estimates of underlying inflation are generally at variance from CPI calculations, with the RPI recording annual prices increase at a rate around 0.9 percent higher than the CPI. Estimates for price changes also vary widely by goods category, especially for clothing.