CPI and RPI

Each month the Office for National Statistics publishes three consumer-price indices: the consumer prices index (CPI), CPI plus owner-occupiers' housing (CPIH), and the retail prices index (RPI). The National Statistician is responsible for them. Two advisory panels, set up in 2015, advise on how the indices are used and on the technical construction. The Office publishes the number.

CPI and CPIH are accredited official statistics. RPI was assessed against the Code of Practice and did not meet the standard, so it is not an accredited official statistic. It is still published because long-term contracts, index-linked gilts among them, are written on it. Since 21 March 2017, CPIH has been the Office's lead measure. The government's inflation target, the one the Bank of England is required to hit, is 2% a year on CPI.

The Chancellor sets that target. The Monetary Policy Committee chooses Bank Rate, and the size of the Bank's gilt holding, in pursuit of it. How the rate reaches mortgages and spending is on The Bank of England. CPI began life in 1997 as the harmonised index of consumer prices, the European measure. In December 2003 the National Statistician renamed the UK version CPI, in the same Pre-Budget Report in which the Chancellor moved the target off RPIX, which is RPI excluding mortgage interest, and onto this index.

A change to the coverage or the basic calculation of RPI has a special rule, because index-linked gilts pay by reference to it. Section 21 of the Statistics and Registration Service Act 2007 says the UK Statistics Authority must ask the Bank of England whether the change would be fundamental and materially detrimental to the holders of a defined set of those gilts. If the Bank says it would, the change needs the Chancellor's consent. The Chancellor withheld that consent while those gilts were still being paid on the old index. The last of them is redeemed in 2030. In the November 2020 response to the joint consultation, the Authority's policy is to bring the methods and data sources of CPIH into RPI from February 2030, the earliest point at which the Bank judged the change would no longer be materially detrimental to those holders. Monthly changes match from that date. A twelve-month rate uses a full year of changes, so the annual RPI and CPIH rates coincide from February 2031.

After that alignment a gap with CPI can remain, because CPIH includes owner-occupiers' housing and Council Tax. The Office for Budget Responsibility's long-run planning assumption, as updated on 22 July 2026, is CPIH and RPI inflation of 2.4% against CPI at the 2% target, a wedge of 0.4 percentage points. It comes from those housing items, and it depends on the OBR's assumption that rents grow with earnings. It is a forecast assumption, not a property of the formula.

Think of a large shopping basket. The Office prices about 760 goods and services, and reviews the basket once a year as what households buy changes. Around 180,000 prices are collected each month, in something like 20,000 outlets, and in some categories scanner and other data sit alongside those quotes. The published rate is the change in the cost of the basket.

Items are weighted by how much households spend on them. Food counts for more than a postage stamp. The weights are refreshed as spending shares move, so the same price rise can matter more in one year than the next. CPI and RPI do not use the same weights, and they do not cover the same households. RPI represents private households and leaves out the highest-income households, about the top 4%, and pensioner households that draw at least three-quarters of their income from state benefits. It includes spending abroad by those households. CPI's weights cover all private households, plus people living in institutions and spending by foreign visitors inside the UK, and they leave spending abroad out.

Under the weights, the two indices average the prices of a single item differently. CPI mostly takes a geometric mean, the Jevons formula. RPI mostly takes an arithmetic mean of the price changes, the Carli formula. When the prices collected for one item spread out, the arithmetic mean rises by more. That formula, together with the housing items on the RPI-only list below, is why RPI has tended to run above CPI. The formula is also why RPI fails the standard for an accredited official statistic.

CPIH starts from CPI and adds Council Tax and owner-occupiers' housing costs. Those housing costs are measured by rental equivalence: the rent the home could earn, the answer to "what would it cost to rent a house like mine?" The rent equivalent follows rents. It leaves the sale price of houses out. Putting an asset price, and the capital gain on it, into a consumption basket would answer a different question.

The published rate is one basket, weighted by average spending. A household that spends a larger share of its income on food and energy feels a rise in those prices more than the index does. A household that spends more on services feels the service prices. The index is the average. It is not a bill.

Rent is in both baskets, so a tenant's housing cost is inside the rate that gets quoted. A household with a mortgage pays interest that RPI records and CPI leaves out. A higher Bank Rate can lift RPI through that one item in a month when CPI has nothing equivalent to record. A household that owns outright pays neither rent nor mortgage interest. CPIH is the measure that gives that household a housing cost, by counting a rent the home could earn.

What a household is promised matters as much as what it buys. A pay deal, a state pension, or a working-age benefit uprated with CPI follows the CPI basket. An index-linked gilt, and a pension linked to RPI, follow RPI. A conventional gilt, a salary fixed in pounds, and a cash balance are a fixed number of pounds. The same inflation rate is a different event for each of them. Why that last case sits inside a gilt yield is on Expected inflation.