Economics- What's the difference between CPI and RPI? What is CPI? :S?

Question

I know all about RPI and how its calculated, but CPI I don't know much about. How is it calculated and how is it different to the RPI?

Answer 1

"The Consumer Prices Index (CPI) and the Retail Prices Index (RPI) are published each month by the UK Office for National Statistics. These are the main measures used in the UK to record changes in the level of the prices most people pay for the goods and services they buy. The RPI is intended to reflect the average spending pattern of the great majority of private households. Only two classes of private households are excluded, on the grounds that their spending patterns differ greatly from those of the others: pensioner households and high-income households. The CPI, however, has a wider remit—it is intended to reflect the spending of all UK residents, and also covers some costs incurred by foreign visitors to the UK."

"The CPI excludes a number of items that are included in RPI-X (the previous target inflation measure), mainly related to housing."

Answer 2

The CPI covers all private households, whereas RPI excludes the top 4% by income and pensioner households who derive at least three quarters of their income from state benefits. The CPI also includes the residents of institutional households such as student hostels, and also foreign visitors to the UK. This means that it covers some items that are not in the RPI, such as unit trust and stockbrokers fees, university accommodation fees and foreign students' university tuition fees.

Although the same underlying price data is used in most cases to calculate the two indices, there are some specific differences in price measurement. For example, different methods are used in the CPI and RPI to compile the index for new cars.

Finally, individual prices are combined in the CPI and RPI within each detailed expenditure category according to different formulae. The CPI uses the geometric mean whereas the RPI uses arithmetic means; this lowers the CPI inflation rate relative to the RPI.

kaboom, done