CPI and RPI: the two inflation numbers and where each one bites
The UK still uses two main measures of inflation. Which one applies to you decides how fast your rail fare, your student loan or your index-linked pension moves.
Inflation is not a single number. The UK publishes several, and the two you will meet most often are CPI and RPI. They usually tell a similar story, but they are calculated differently and, crucially, they are used for different things, so it matters which one is attached to a given bill or benefit.
What each one measures
Both indices track how the price of a typical basket of goods and services changes over time. The Office for National Statistics collects prices across the country every month and turns them into an index.
CPI, the Consumer Prices Index, is the government’s headline measure and the one the Bank of England targets. There is also CPIH, which is CPI plus owner-occupier housing costs, and it is the ONS’s preferred measure. RPI, the Retail Prices Index, is an older measure that includes some housing costs such as mortgage interest and uses a different averaging method. Because of that method, RPI has tended to run higher than CPI over time. RPI is no longer classed as an official national statistic, but it has not gone away, because it is still written into many long-standing contracts and formulas.
Where each one is used
This is where it hits your money. CPI is generally used to uprate the state pension and many benefits, and for the triple lock it is the September CPI figure that feeds into the calculation. Public-sector and many private pensions in payment are often increased by CPI too.
RPI, despite being demoted, still governs a surprising amount. Regulated rail fares in England have historically been linked to an RPI figure, some index-linked government bonds pay out against RPI, and interest on student loans and various commercial contracts can reference it. Because RPI usually reads higher, being on the RPI side of a formula tends to cost you more or, in the case of an RPI-linked bond, pay you more.
Why the gap matters
A percentage point of difference between CPI and RPI sounds small, but compounded over years it is real money. If your income rises with CPI while a cost you face rises with RPI, you slowly lose ground. That single mismatch explains a lot of the friction people feel between what the official inflation rate says and what their own budget is doing.
The practical takeaway
When a rise is announced, look for which index it is pegged to and to which month’s figure. The headline inflation rate you hear on the news is normally CPI, but the number quietly governing your rail fare or loan may be RPI. The ONS publishes both every month, so you can always check the current figures at source rather than relying on a rounded headline.