What is the 'Retail Prices Index - RPI'
The retail prices index (RPI) is one of the two main measures of consumer inflation produced by the United Kingdom's Office for National Statistics. The Retails Price Index (RPI) was introduced in the U.K. in 1947, and was made official in 1956. Like the better-known Consumer Prices Index (CPI), the RPI tracks changes in the cost of a fixed basket of goods over time, and is produced by combining about 180,000 price quotes for over 650 representative items. However, since the introduction of the CPI in 1996, 12-month inflation in the U.K. has generally been about 0.9 percentage points higher when measured by the RPI, as compared to the CPI.
BREAKING DOWN 'Retail Prices Index - RPI'
The difference of 0.9 percentage points between the RPI and CPI in the U.K. arises for a number of reasons. Firstly, the RPI includes a number of items that are excluded in the CPI, and vice versa. Secondly, the two indicators measure price change for different target populations. Finally, the two measures use different formulas, leading to a difference known as the "formula effect."