Difference Between CPI and RPI

The increase and decrease in the goods and services in an economy accounted for over duration is referred to as inflation. As rising inflammation shows the increasing purchasing power of the currency, besides declining inflammation shows decreasing purchasing power of the currency. The reserve bank maintains inflation by increasing or decreasing policy rates. To maintain inflation, there’s a need of calculating inflation. So, there are different ways to calculate, such as CPI, WPI, PPI, RPI, and so on. 

CPI vs RPI 

The main difference between CPI and RPI is that CPI stands for “consumer price index”, while RPI stands for “Retail Index Price”. Secondly, CPI is defined as weighted average prices of the basket of goods and services consumed by households. Meanwhile, RPI is defined as changes in the retail prices of a basket of goods and services measuring consumer inflation. Thirdly, CPI includes food beverages, tobacco, fuel and light, bedding, housing, and miscellaneous. Meanwhile, RPI includes the varied price of retail goods and services. Fourthly, Housing cost is not included in CPI, while RPI includes housing cost. Lastly, CPI has an arithmetic mean, while RPI has a geometric mean.

CPI and RPI

CPI refers to the “Consumer price index”, defined as weighted average prices of the basket of goods and services consumed by households. And the index includes food beverages, tobacco, fuel and light, bedding, housing, and miscellaneous. Moreover, it doesn’t include housing costs. And consumer price index has an arithmetic mean. 

RPI refers to the “Retail index price”, defined as changes in the retail prices of a basket of goods and services measuring consumer inflation. And the index includes the varied price of retail goods and services. Moreover, the index includes housing costs. And retail Index price has a geometric mean

Comparison Table Between CPI and RPI 

Parameters of comparison CPIRPI 
ReferCPI stands for “consumer price index”.RPI stands for “Retail Index Price”. 
Definition CPI is defined as weighted average prices of the basket of goods and services consumed by households.RPI is defined as changes in the retail prices of a basket of goods and services measuring consumer inflation
Index includesCPI includes food beverages, tobacco, fuel and light, bedding, housing, and miscellaneous.RPI includes the varied price of retail goods and services.
Housing cost Housing cost is not included in CPI.RPI includes housing costs. 
Mean CPI has an arithmetic mean. RPI has a geometric mean.

What is CPI?

The economy is a significant factor in the development of a country. Further, the changes in the economy impact prudently. So, a calculation is required for checking and maintenance of economy. Thus, the inflation is calculated by the CPI, RPI, WPI, PPI, and so on. However, the reserve bank uses it to maintain inflation by changing policy rates. 

CPI is an abbreviation of the “Consumer price index” that defines weighted average prices of the basket of goods and services consumed by households. The index includes food beverages, tobacco, fuel and light, bedding, housing, and miscellaneous. However, there are five that have the most weightage in the index. 

For the calculation, the prices of the goods are collected in regular intervals to compute the CPI. And reserve banks can use this calculation for further increasing and decreasing policy rates to maintain the economy. 

It was first introduced after the first world war period due to increasing changes in prices. Thus, CPI was introduced to curb those significant changes and maintain inflation. 

Moreover, housing cost is not included in the CPI calculations. As for the calculation, it uses geometric mean. Additionally, it checks price stability and is used as a barometer of inflation. 

What is RPI?

Another calculation method is RPI for computing inflation. RPI is an abbreviation of the “Retail price index” that defines changes in the retail prices of a basket of goods and services measuring consumer inflation. The index includes the varied price of retail goods and services. 

For the calculation, the retail prices of the goods are collected in regular intervals to compute the RPI. And RPI’s main use is the evaluation of retail prices and services. 

It was firstly introduced in the UK to curb increasing social housing rent and index-linked securities. Thus, the UK government uses it. 

Moreover, housing cost is included in the RPI calculations such as mortgage interest payments, insurance of the building, etc. As for the calculation, it uses the arithmetic mean as the number of items divides the total of all prices. 

Additionally, the population size is mall as compared to CPI. As was mentioned, RPI includes housing costs, but it doesn’t include finance charges. 

RPI is not much used for calculation as CPI has more relevance and is considered as a significant indicator. And the value is comparatively higher than that of CPI. 

The major difference between CPI and RPI is the different target audiences. RPI may not include items of CPI and even their formula is different. 

Main Differences Between CPI and RPI 

The economy is a crucial factor for a country. So, Reserve Bank calculates inflation to maintain and check the changes in the economy. For further implementation of increasing or decreasing policy rate to retain inflation. . As for the calculation, it uses CPI, RPI, WPI, PPI, and so on. Although CPI and RPI are very different, they are misunderstood. 

  1. CPI stands for “consumer price index”, while RPI stands for “Retail Index Price”. 
  2. CPI is defined as weighted average prices of the basket of goods and services consumed by households. Meanwhile, RPI is defined as changes in the retail prices of a basket of goods and services measuring consumer inflation. 
  3. CPI includes food beverages, tobacco, fuel and light, bedding, housing, and miscellaneous. Meanwhile, RPI includes the varied price of retail goods and services. 
  4. Housing cost is not included in CPI, while RPI includes housing cost. 
  5. CPI has an arithmetic mean, while RPI has a geometric mean.

Conclusion 

The economy is critical to a country’s success. As a result, the Reserve Bank estimates inflation to keep track of and monitor developments in the economy. To sustain inflation, the policy rate will be increased or decreased in the future. CPI, RPI, WPI, PPI, and other indexes are used in the calculation. Even though CPI and RPI are substantially different, they are often mistaken.

CPI stands for “Consumer price index”, defined as weighted average prices of the basket of goods and services consumed by households. Food, drinks, cigarettes, fuel and light, bedding, housing, and miscellaneous are all included in the index. Furthermore, it excludes housing expenditures. In addition, the CPI has an arithmetic mean.

The RPI stands for “Retail index price,” which is defined as changes in the retail prices of a basket of products and services that are used to measure consumer inflation. The index also takes into account the price variations of retail products and services. Housing expenditures are also included in the index. In addition, the price of the retail Index has a geometric mean.

References

  1. https://www.obr.uk/docs/dlm_uploads/Working-paper-No2-The-long-run-difference-between-RPI-and-CPI-inflation.pdf
  2. https://www.econstor.eu/handle/10419/91535
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