Differences Between CPI vs RPI
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 RateRepo Rate Vs Bank RateThe Bank Rate is the interest rate charged by a central bank on loans and advances made to commercial banks without any security. In contrast, the Repo Rate is the rate at which the Central Bank lends money to commercial banks in case of a shortage of funds.read more, Cash Reserve Ratio, and the Statutory Liquidity Ratio. Various measures are used for calculating inflation, such as Consumer Price Index (CPI)(CPI)The Consumer Price Index (CPI) is a measure of the average price of a basket of regularly used consumer commodities compared to a base year. The CPI for the base year is 100, and this is the benchmark point.read more, Wholesale Price Index (WPI)Wholesale Price Index (WPI)The Wholesale Price Index tracks the price movement of products in a set territory and wholesaler jurisdiction. Wholesalers provide, manage, and control commodities, usually commonly traded goods, before they are sent to retailers.read more, Producer Price Indexes (PPI), Retail Price Index (RPI), etc. In this article, we will discuss the differences between CPI and RPI.
#1 – 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 macroeconomicMacroeconomicMacroeconomics aims at studying aspects and phenomena important to the national economy and world economy at large like GDP, inflation, fiscal policies, monetary policies, unemployment rates.read more indicator of inflation and supervises price stability.
You are free to use this image on you website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: CPI vs RPI (Top Differences) (wallstreetmojo.com)
#2 – 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.
CPI vs RPI Infographics
Here, we provide the top 7 differences between CPI and RPI.
CPI vs RPI Key Differences
We will get 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 depreciationDepreciationDepreciation is a systematic allocation method used to account for the costs of any physical or tangible asset throughout its useful life. Its value indicates how much of an asset’s worth has been utilized. Depreciation enables companies to generate revenue from their assets while only charging a fraction of the cost of the asset in use each year.
read more, road fund license, council tax, mortgage interest payments, etc. However, CPI does not have such housing costs.CPI applies the geometric meanGeometric MeanGeometric Mean (GM) is a central tendency method that determines the power average of a growth series data. read more 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 meanGeometric MeanGeometric Mean (GM) is a central tendency method that determines the power average of a growth series data. read more for computing the variation in the prices. RPI uses the arithmetic meanArithmetic MeanArithmetic mean denotes the average of all the observations of a data series. It is the aggregate of all the values in a data set divided by the total count of the observations.read more 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.
CPI vs RPI Head-to-Head Differences
Now, let us look at the head-to-head differences between CPI and RPI
Conclusion
CPI and RPI indicate the changes in the prices of goods and services compared to the base year’s standard costsStandard CostsStandard cost is an estimated cost determined by the company for the production of the goods and services or for performing an operation under normal circumstances and are derived by the company from the historical analysis of the data or from the time and the motion studies.read more. The calculation method differs as the geometric mean is used in CPI, whereas the arithmetic means calculate RPI. In addition, RPI includes housing costs such as mortgage interest payments, which is not in the case of CPI computation. CPI is considered a lead indicator of inflation and thus has more relevance than RPI.
RPI of the UK for September 2018 has been reported at 3.3%, compared to 3.5% in August 2018. In September 2018, the CPI of India rose to 3.77% due to the rising prices of food and other goods and services. The RBI has restated that the target of consumer inflation is 4% and has kept the RepoRepoA repurchase agreement or repo is a short-term borrowing for individuals who deal in government securities. Such an agreement can happen between multiple parties into three types- specialized delivery, held-in-custody repo and third-party repo.read more rate unchanged at 6.5% in the recent credit policy announced on 5th October 2018. Some of the concerns regarding rising inflation are elevated oil prices, an increase in the minimum support prices (MSP), and volatilityVolatilityVolatility is the rate of fluctuations in the trading price of securities for a specific return. It is the shift of asset prices between a higher value and a lower value over a specific trading period. read more in emerging markets.
Recommended Articles
This article guides the differences between CPI and RPI. We discussed the top 7 differences with examples, infographics, and a comparison table. You may also look at the following articles: –
- WPI vs CPIDeflation vs DisinflationReal Rate of Return FormulaBudget Deficit Meaning
