Unit 2: Measuring Inflation

Inflation is defined as the sustained increase in the price level. There are two official measures of inflation used in the UK. The Retail Prices Index and the Consumer Prices Index.

How are the CPI and RPI calculated?

The Office for National Statistics (ONS) collects 120,000 prices each month from a wide range of shops across the UK (including those in shopping centres, out-of-town retail outlets, supermarkets and corner shops) and from the internet.

These prices represent the goods and services typically bought by households. Price collectors visit shops in 141 locations to collect over 100,000 prices. This ensures that variations in price across the UK are captured. For some goods and services, the same price is charged throughout the country, for example, TV licences and purchases from catalogues. These prices are collected centrally and account for over 12,000 prices.

The price collectors visit the same shops each month to collect the prices of identical products to ensure they are comparing like for like. As a large number of prices are collected for each item, the sample contains a broad representation of brands. For example, over 130 prices are collected for a box of 80 tea bags and these include all the main brands as well as supermarkets’ own brand tea bags.

Prices are collected for a representative basket of around 650 goods and services that households spend money on. Households spend different amounts of money on different items. For example, the spending pattern of a single pensioner may be different from that of a couple with two children. To reflect this, products are grouped together and a weight is allocated to represent the appropriate share of household expenditure.

The weights for the RPI are derived mainly from the Expenditure and Food Survey. The EFS samples over 6,000 households from all over the country. Households record every purchase they make over a fortnight. Details of major purchases are recorded over a longer period of time. The items in the basket and their weights are reviewed and updated annually so that changes in household spending patterns are reflected.