What is the Difference Between CPI and RPI?

The main differences between the Consumer Price Index (CPI) and the Retail Price Index (RPI) are:

1. Coverage: CPI covers a wider range of households, including institutional households such as care homes, boarding schools, and other student accommodations, while RPI focuses on the average household in the UK.
2. Expenses: RPI includes mortgage interest payments, which are excluded from CPI. CPI, on the other hand, includes items such as university accommodation fees, foreign students' university tuition fees, and unit trust and stockbrokers' charges, which are not part of RPI.
3. Formula: CPI uses a geometric mean to aggregate price changes, while RPI uses an arithmetic mean. The geometric mean is better suited to account for the effect of substitution between goods and services.
4. Housing Costs: CPI does not take housing costs into account, while RPI does.
5. Usage: CPI is widely used as an economic barometer of inflation in many nations, while RPI is used for a range of purposes, including setting in-line with inflation increases for excise duty rates, train tickets, and mobile phone airtime tariffs.

In summary, CPI and RPI are both measures of inflation, but they differ in their coverage, expenses considered, formulas used for calculation, and the impact of housing costs. CPI is more widely used as an economic indicator, while RPI is used for specific purposes, such as adjusting taxes and prices.

Comparative Table: CPI vs RPI

The main differences between the Consumer Price Index (CPI) and the Retail Price Index (RPI) are as follows:

CPI is widely used as an economic barometer of inflation in many nations and has more fundamental relevance compared to RPI. RPI, on the other hand, includes mortgage interest payments and is heavily influenced by house prices and interest rates. CPI does not take housing costs into account but factors in all other goods and services.