retail price index/consumer price index

Composition of the CPI, 2003click for a larger image
Fig. 76 Composition of the CPI, 2003. Source: Office for National Statistics.

retail price index/consumer price index

a weighted average of the PRICES of a general ‘basket’ of goods and services bought by final consumers. Each item in the index is weighted according to its relative importance in total consumers' expenditure (See Fig. 76). Starting from a selected base year (index value = 100), price changes are then reflected in changes in the index value over time. Thus, in the case of the UK's CPI the current base year is 1996 = 100; in February 2005 the index value stood at 111.9 indicating that consumer prices, on average, had risen 12% between the two dates.

Since December 2003 the CPI has been used by the UK government as a measure of the rate of INFLATION in the economy for the purposes of applying macroeconomic policy in general and monetary policy in particular (see MONETARY POLICY COMMITTEE). Previously the RETAIL PRICE INDEX (RPI) was used for this purpose, but the CPI measure was adopted to harmonise the way the UK measured its inflation rate with that of other countries in the EUROPEAN UNION. See Fig. 46 in the main INFLATION entry