CPI vs RPI (Top Differences)

The difference between Consumer Price Index (CPI) and Retail Price Index (RPI) is gauged in terms of their indication of the changes in the prices of goods and services compared to the base year’s standard costs.

While CPI stands for Consumer Price Index and tracks the price changes with respect to the average expenditure of consumers on an average weighted basket over a period, RPI stands for Retail Price Index and tracks the change in the retail prices of a specified basket of goods and products over a period.

Now, let us look at the head-to-head differences between CPI and RPI

What Is Consumer Price Index (CPI)?

Consumer Price Index (CPI) measures changes in the prices of goods and services purchased by households for consumption. CPI includes five broad components: food, beverages and tobacco, fuel and light, housing, clothing, bedding, and miscellaneous footwear. The prices of the representative items are collected at regular intervals for computing the index. CPI can also index the real value of salaries, wages, and pensions to gauge the price increase. The RBI widely uses CPI numbers as a macroeconomic indicator of inflation and supervises price stability.

What Is Retail Price Index (RPI)?

RPI was introduced by the Office for National Statistics in the UK in 1947 as a measure of inflation to evaluate the prices of retail goods and services. The UK government utilizes RPI for some purposes, like working out the amounts payable on index-linked securities (including the index-linked gilts) and increasing social housing rent. RPI also considers housing costs such as mortgage interest payments, building insurance, etc.

Inflation represents the increase in the price level of goods and services in an economy for an amount of time. Therefore, the rise in inflation would indicate that the currency's purchasing power is declining. The Reserve Bank strives to control inflation by raising the policy rates such as the Repo Rate vs Bank Rate, Cash Reserve Ratio, and the Statutory Liquidity Ratio. Various measures are used for calculating inflation, such as Consumer Price Index (CPI),  Wholesale Price Index (WPI), Producer Price Indexes (PPI), Retail Price Index (RPI), etc.

Listed below are the differences between CPI and RPI. This will give more clarity on the subject matter by reading the differences between CPI and RPI.

• Consumer Price Index changes the prices of goods and services consumed by households concerning a base year. RPI is the measure of consumer inflation that accounts for the changes in the retail prices of the representative basket of goods and services.
• CPI was introduced after World War I when there was a significant rise in prices. The workers demanded compensation against the backdrop of the decline in the real wages and escalation of the cost of living. As a result, it changed the cost-of-living index numbers to the consumer price index after July 1955. The RPI was introduced in the UK in 1947 and replaced the earlier Interim Index of Retail Prices. However, since 2013, the Office for National Statistics has been focusing on using CPI instead of RPI as an official measure of inflation.
• The major difference in the components is that RPI includes housing costs such as housing depreciation, road fund license, council tax, mortgage interest payments, etc. However, CPI does not have such housing costs.
• CPI applies the geometric mean for computing the variation in the prices. RPI uses the arithmetic mean where the number of items is divided by the total expenditures for computation.
• The national statistical agencies calculate CPI after classifying the consumption components based on the type of consumers – rural and urban.

• The consumer price index changes the prices of goods and services consumed by households concerning a base year. RPI is the measure of consumer inflation that accounts for the changes in the retail prices of the representative basket of goods and services.
• CPI was introduced after World War 1 when there was a significant rise in prices. The workers demanded compensation against the backdrop of the decline in the real wages and escalation of the cost of living. It changed the Cost of Living Index Numbers to Consumer Price Index after July 1955. The RPI was introduced in the UK in 1947 and replaced the earlier Interim Index of Retail Prices. However, since 2013, the Office for National Statistics has been focusing on using CPI instead of RPI as an official measure of inflation.
• The major difference in the components is that RPI includes housing costs such as housing depreciation, road fund license, council tax, mortgage interest payments, etc. However, CPI does not have such housing costs.
• CPI applies the geometric mean for computing the variation in the prices. RPI uses the arithmetic mean where the number of items is divided by the total costs for computation.
• The national statistical agencies calculate CPI after classifying the consumption components. These categories are based on the type of consumers – rural and urban.

• RPI is calculated after giving weights to the components as per the level of relevance. Then, the price of each element is multiplied by the respective weight. The base year selected acts as the standard against which the variations in the current prices are evaluated.
• CPI is widely used as an economic barometer of inflation in many nations. Hence, CPI has more fundamental relevance as compared to RPI.

Here, we provide the top 7 differences between CPI and RPI.

This article has been a guide to the differences between CPI and RPI. Here, we explain it through the comparative table, infographics, and a list of key differences. You may also look at the following articles: –

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