If you follow money news in the UK, you’ll keep seeing CPI and RPI mentioned everywhere.
They show up in headlines, pay rise discussions, benefit changes, rail fares, student loans and savings rates.
The problem is that they’re rarely explained in a way that makes it obvious why they matter to everyday finances.
This guide breaks down what CPI and RPI actually mean, how they’re different, and which one is more likely to affect you.
What is inflation?
Inflation is the rate at which the average prices of goods and services increase over time. When prices “inflate,” your money buys less than before, reducing its purchasing power.
In the UK, inflation is primarily measured by the Office for National Statistics (ONS).
Each month, the ONS tracks the prices of more than 700 everyday goods and services, known as the “basket of goods.”
Changes in these prices are used to calculate inflation rates such as CPI and RPI.
Inflation in simple terms
Inflation is just a way of describing how prices change over time.
When inflation rises, your money buys less than it did before. When it falls, prices are rising more slowly or staying steadier.
Because everyone spends money differently, inflation isn’t measured using one single price.
Instead, economists track the cost of a “basket” of everyday goods and services and see how that basket changes over time.
That’s where CPI and RPI come in.
What is CPI and how is it used?
CPI stands for Consumer Prices Index.
It measures the average change in prices for a wide range of everyday items, such as food, clothing, transport, and leisure.
The basket is reviewed regularly to reflect how people actually spend their money.
CPI is the main inflation measure used by the UK government and the Bank of England. It’s often used when:
- Setting inflation targets
- Deciding changes to benefits and pensions
- Assessing the overall cost of living
When you hear about “the inflation rate” on the news, it’s usually CPI.
What is RPI and where does it still show up?
RPI stands for Retail Prices Index.
It measures price changes in a similar way to CPI, but includes some additional costs.
The biggest difference is that RPI includes certain housing costs, such as mortgage interest payments and council tax.
Because of what it includes and how it’s calculated, RPI usually comes out higher than CPI.
Although it’s no longer the government’s preferred measure, RPI is still used for:
- Some wage agreements
- Rail fare increases
- Student loan interest
- Certain savings and investment products
That’s why it continues to matter.
The key differences between CPI and RPI
The difference between CPI and RPI isn’t just a technical detail. It affects the numbers people see and feel.
- CPI excludes most housing costs, while RPI includes some of them
- CPI uses a different calculation method that tends to produce lower figures
- RPI usually shows a higher rate of inflation as a result
These differences explain why two inflation figures can exist at the same time without either being a mistake.
CPI vs RPI: Key differences at a glance
| Feature | CPI | RPI |
|---|---|---|
| Includes mortgage interest? | No | Yes |
| Includes council tax? | No | Yes |
| Formula | Geometric mean (accounts for substitutions) | Arithmetic mean (less accurate) |
| Government use | Official target for inflation | Largely phased out |
| Typical rate | Lower | Higher |
Example: If avocado prices soar and households switch to cheaper fruit, CPI adjusts for that switch, while RPI does not, often making RPI appear higher.
Which one affects you, and when
Whether CPI or RPI matters more depends on where inflation is being applied.
CPI often affects:
- State benefits
- Pensions
- General cost of living discussions
RPI is more likely to affect:
- Rail fares
- Student loan interest
- Some pay rises
- Certain savings accounts and index-linked products
Understanding which measure applies helps explain why some costs rise faster than others.
Why CPI is often lower than RPI
CPI is usually lower because it excludes some housing costs and uses a calculation method that smooths out price changes differently.
RPI includes mortgage interest payments, which can rise sharply when interest rates increase. That alone can push RPI higher, even if other prices aren’t rising as quickly.
This doesn’t mean one measure is right and the other is wrong. They’re just measuring slightly different things.
Common misconceptions about CPI and RPI
There are a few misunderstandings that come up a lot.
A higher figure doesn’t automatically mean a more accurate one. It just reflects what’s included.
RPI hasn’t been removed everywhere. It still plays a role in many everyday costs.
CPI does affect ordinary households, even if it feels abstract at first. It influences decisions that shape wages, benefits and interest rates.
Clearing up these points helps make inflation feel less confusing.
How to track UK inflation
- ONS Inflation and Price Indices (official monthly figures)
- Bank of England inflation forecast
- Financial media (BBC, Financial Times, Guardian Money)
Final thoughts
You don’t need to understand every technical detail of inflation to make sense of CPI and RPI.
What matters is knowing that CPI is the main headline measure, while RPI still affects certain costs that hit household budgets directly.
Once you know which one applies to your situation, the numbers start to make a lot more sense, and the headlines feel far less overwhelming.
CPI and RPI inflation FAQs
What is the simplest way to explain CPI and RPI?
CPI tracks the cost of goods and services households typically buy, excluding housing costs like mortgages. RPI includes mortgage interest and council tax but is seen as less reliable.
Why does the government prefer CPI over RPI?
CPI follows international standards, reflects real consumer behaviour, and is less prone to statistical bias. RPI is considered flawed and is being phased out.
How does inflation affect my savings?
Inflation reduces the purchasing power of money. If inflation is 3% and your savings earn 2% interest, your money’s real value is shrinking.
Which measure should I look at for my personal finances?
CPI is most relevant for everyday costs, while RPI may apply to specific contracts (pensions, rent, student loans). Always check the terms of your agreements.
Can RPI ever be abolished?
The government has announced plans to align RPI with CPIH by 2030. Until then, it remains in use for some contracts, though its official role is diminishing.
