Inflation is often in the in the news, with the two main measures being RPI and CPI inflation.
Inflation peaked at more than 10% back in October 2022 but has steadily dropped since then, meaning prices are rising but not as quickly.
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For example, inflation was unmoved at 4% in the 12 months to January 2024, despite expectations it would increase as a result of higher energy bills.
Inflation can have a major impact on household finances - but how exactly is inflation measured, what is the difference between RPI vs CPI inflation, and what does it mean for you?
What is RPI inflation?
RPI - Retail Price Index - is one of two indices used to measure the cost of goods and services.
RPI was the original consumer price inflation measure, first implemented in 1956 when it was also the only measure of its kind for the health of the UK economy.
RPI was replaced by CPI (see below for more on CPI) in 1996 as the official measure for inflation. And while RPI is no longer used as the main measure, it still used by the government to incorporate costs such as rent and mortgage repayments (which are not included in the CPI).
RPI tends to be higher than CPI and is currently 4.9% - down from 5.2% in December.
What is CPI inflation?
CPI - Consumer Price Index - is the official measure for inflation, looking at the rate of change in prices for goods and services over a 12 month period.
The current rate of CPI inflation is 4% for 12 months to January.
To measure this, each month ONS looks at around 180,000 prices of 730 typical goods and services to see how prices have changed. These shopping basket items are reviewed each year to keep up with the times - for example, we’ve seen digital cameras drop out and e-scooters come in.
And while this gives us an inflation figure, it is worth noting that inflation varies household to household, depending on your spending habits and needs - you can see what your personal inflation rate is using the ONS inflation calculator.
What is CPIH inflation?
The CPIH is another related measure the ONS uses - it is the Consumer Price Index including owner occupiers’ housing (OOH) costs.
It is similar to CPI, but includes the costs of owning, maintaining and living in a home.
It’s worth noting that RPI also includes some housing costs.
How does CPI and RPI affect living costs?
While CPI is the main measure of inflation, there is no single measure to include everything.
Each measure includes different components and affect different living costs.
- Tobacco duty
- Air passenger duty
- Road tax
- Alcohol duty
- Council Tax
- Mobile phone tariffs
- Final salary pension payments
- Interest in student loans
- income from index-linked annuities
- Train tickets
- State pensions
- Public sector pensions
- Pensions lifetime allowance
- Income benefits, including Universal Credit
- Statutory sick pay
What does high inflation mean?
High inflation means costs are rising at a faster rate and unless your money is keeping up, the value of your cash will erode over time.
So, unless your savings beat inflation, the value of your cash is in fact losing value. And if wages do not keep up with inflation, then you will not be able to maintain the lifestyle you want.
What impact does low inflation have?
Low inflation means prices are rising at slower rates, which may seem like good news, but it also indicates a weaker economy. The government considers a 2% rate as healthy.
Kalpana is an award-winning journalist with extensive experience in financial journalism. She is also the author of Invest Now: The Simple Guide to Boosting Your Finances (Heligo) and children's money book Get to Know Money (DK Books).
Her work includes writing for a number of media outlets, from national papers, magazines to books.
She has written for national papers and well-known women’s lifestyle and luxury titles. She was finance editor for Cosmopolitan, Good Housekeeping, Red and Prima.
She started her career at the Financial Times group, covering pensions and investments.
As a money expert, Kalpana is a regular guest on TV and radio – appearances include BBC One’s Morning Live, ITV’s Eat Well, Save Well, Sky News and more. She was also the resident money expert for the BBC Money 101 podcast .
Kalpana writes a monthly money column for Ideal Home and a weekly one for Woman magazine, alongside a monthly 'Ask Kalpana' column for Woman magazine.
Kalpana also often speaks at events. She is passionate about helping people be better with their money; her particular passion is to educate more people about getting started with investing the right way and promoting financial education.
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