# RPI vs. CPI: Key Differences & Uses of Retail Price Index in the U.K.

![Retail Price Index (RPI): One of two measures of consumer inflation produced by the United Kingdom's Office for National Statistics.](https://www.investopedia.com/thmb/-EIKSgLyvAKfSKRnIzroltFz_No=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/rpi.asp-final-098e58fa7a2849deb43d48393873bc24.png)

*— Investopedia / Julie Bang*

## What Is the Retail Price Index (RPI)?

The Retail Price Index (RPI) is a traditional measure of inflation in the U.K., introduced in 1947 and active since 1956. It was replaced by the Consumer Prices Index (CPI) as the official inflation measure in 2003. RPI is often used in wage negotiations, tax allowance adjustments, and setting social housing rents. Although not the official statistic, RPI still influences some economic sectors.

### Key Takeaways

*   The Retail Price Index (RPI) was established in 1947 and is a legacy measure of inflation in the U.K.  
    
*   RPI is used for wage negotiations, tax allowance changes, and social housing rent adjustments despite being replaced as the official measure of inflation by CPI in 2003.  
    
*   Differences between RPI and CPI can lead to variations in reported inflation rates due to different included goods and calculation methods.  
    
*   RPI influences financial areas such as tax allowances, social housing rents, and index-linked securities, maintaining its impact on the economic landscape.  
    
*   The Office for National Statistics reclassified RPI as "not a national statistic" in 2013, but it is still published due to legal requirements.

## Measuring U.K. Inflation: The Role of RPI

First calculated in June 1947, RPI replaced the Cost of Living Index as the U.K.'s main inflation measure. The Retail Price Index (RPI) was replaced by the Consumer Prices Index (CPI) as the primary measure of inflation in 2003 to set the inflation target for the Bank of England's Monetary Policy Committee. In 2013, the Office of National Statistics reclassified the RPI as "not a national statistic" but continues to include it with other indexes on its website.

> **Important**
>
> The rate of inflation is the change in prices for goods and services over time.

## How RPI Impacts Financial Decisions

Despite not being official, RPI is used to determine:

*   [cost of living](https://www.investopedia.com/terms/c/cost-of-living.asp) and wage escalation
*   tax allowances on index-linked securities
*   social housing rent increases
*   wage rates during employment negotiations

## RPI vs. CPI: Understanding the Differences

The RPI tracks the cost of a fixed [basket of goods](https://www.investopedia.com/terms/b/basket_of_goods.asp), using about 180,000 price quotes for 700 items. The CPI began in 1996 as the Harmonised Index of Consumer Prices (HICP). This index was developed to unite statistics for measuring all EU economies following the [Economic and Monetary Union](https://www.investopedia.com/terms/m/maastricht-treaty.asp) in 1992.

Since the CPI's introduction, RPI has generally shown higher 12-month inflation rates compared to CPI in the U.K. This difference happens because RPI and CPI include different items. Secondly, the two indicators measure [price change](https://www.investopedia.com/terms/p/price-change.asp) for different target populations, and both use different formulas, leading to a difference known as the "formula effect."

## Why Is the RPI Considered a Legacy Measurement?

Over time, the RPI calculation has not been updated or corrected to create a correct measure of inflation. The U.K. Statistics Authority considers RPI to be “a legacy measure” for this reason and publishes it only because it is required to do so.

## What Is Included in the CPI?

The CPI includes all spending by private and institutional households and foreign nationals when visiting the United Kingdom.

## What Is an Example of the RPI vs. CPI?

Due to the varying inputs to both indexes, the inflation rate calculations differ significantly. In May 2023, the CPI was 8.7%, and the RPI was 11.4%. The ONS in the U.K. lists the RPI as "not a national statistic."

## Final Thoughts on RPI's Legacy

The RPI is one of two measures of consumer inflation produced by the UK's Office for National Statistics. First introduced in 1947, it was initially the principal measure of inflation but is now regarded as a legacy measure due to its outdated calculation method. It was replaced by the CPI in 2003. RPI has limited applications currently but continues to be published by the UK government.

> **Article Sources**
>
> 1.  Office of National Statistics. "[Inflation and Price Indices](https://www.ons.gov.uk/economy/inflationandpriceindices)."
>     
> 2.  Thomson Reuters. "[Retail Price Index (RPI)](https://uk.practicallaw.thomsonreuters.com/5-377-4351?transitionType=Default&contextData=%28sc.Default%29#:~:text=It%20measures%20the%20average%20change,maintenance%20payments%20and%20housing%20rents.)."
>     
> 3.  U.K. Parliament. "[Measuring Inflation Contents](https://publications.parliament.uk/pa/ld201719/ldselect/ldeconaf/246/24604.htm)."
>     
> 4.  U.K. Parliament. "[Criticism of the Retail Prices Index](https://publications.parliament.uk/pa/ld201719/ldselect/ldeconaf/246/24605.htm)."