macroeconomic indicators

• Consumer Price Index (CPI)


  An index that measures the change in the price of a fixed basket of consumer goods bought by a typical household
• CPI


  • A 'household basket' of 700 goods and services that an average family would purchase is compiled on an annual basis
  • A household expenditure survey is conducted to determine what goes into the basket
• Updating the CPI basket


  Each year, some goods and services exit the basket and new ones are added
• Consumer Price Index (CPI)

  The formula used to calculate the CPI is: CPI = Cost of basket in year X / Cost of basket in base year x 100
• The percentage difference in CPI between the two years is the inflation rate for the period
• Retail Price Index (RPI)


  Calculated in exactly the same way as the CPI
• Goods and services included in RPI but excluded from CPI

  • Council tax
  • Mortgage interest payments
  • House depreciation
  • Other house purchasing costs such as estate agents fees
• Inflation measured using the RPI


  Usually higher than the CPI
• Reason for RPI being higher than CPI

  Its sensitivity to interest rate changes, which affect mortgage interest
• RPI


  A more accurate indication of household inflation
• The explanation of how a consumer price index is composed can be found on the page 'Using Index Numbers'