From Suppliers Manual
Economic inflation is the rise (or in rare cases fall, known as deflation) of general prices and the cost of living over a period of time, usually 12 months, quoted as a percentage. Inflation is measured in 2 main ways, the Consumer Price Index (CPI) and Retail Price Index (RPI).
Both measures are calculated using a “Basket of Goods”, which represents what an average family would spend over the given period. These items are then weighted depending on importance and what proportion of income is spent on the items. An average of the price increase is then calculated to give a percentage of what general prices have risen by over the period.
There are 2 main differences between CPI and RPI. CPI does not include any cost of housing such as mortgage, rent or council tax. The average is also calculated slightly differently, RPI being the arithmetic mean and CPI being the geometric mean. This usually results in CPI being approximately 1% lower than RPI.
There are also 2 different variations of RPI, RPI-X, which does not include mortgage repayments and RPI-Y which does not include indirect tax such as VAT. These are also sometimes quoted to give an in-depth view of inflation.
