What is the difference between inflation and RPI? My wages have gone up 3% is that good or bad?

Answer 1

RPI is the retail price index that keeps track of the price of goods sold at retail.

Its cousin is the WPI which tracks the prices of goods sold at Wholesale.

A third measure is the CPI the consumer price index which tracks the price of a 'typical basket of goods' of the average consumer.

They have different uses; if you want to know whether, on average, producers are better off, you use the WPI. Say their profits went up by 5% and the WPI only went up by 2%, then, 'in real terms' they are better off.

The same applies for the RPI for retailers, and the CPI for consumers.

But to decide whether, as an individual, a wage increase is enough to cover the cost of inflation, we cannot look at the CPI. The CPI looks for the 'average consumer'. Nobody is the average consumer, we each have our own tastes and preferences.

Take a look at your own grocery bills. By how much did your rent go up? What else do you spend money on; are you spending on? If you are paying less than 3% more for the stuff you bought last year, then you are better off.

Answer 2

The retail price index(RPI) takes a much broader measure of inflation. The official figures used by the government do not include housing costs so artificially lower costs faced by most people. The latest RPI was 4.2% where as the government stats said 3% (above BoE target hence interest hike).

Using % to measure things is only a very broad indication it can be misleading, spending requirements differ according to your circumstances. The ONS recently launched an on line service where you can enter some basic details and calculate your own personal inflation rate.

As for your circumstances if you earn £150k pa 3% could be a good pay rise as you will get £4.5k extra pa, if on the other hand you earn the minimum wage (adult) you will get 15p per hour you work.

Answer 3

The Retail Price Index (RPI) is a measure of inflation. There is also the Consumer Prices Index (CPI) which is an international standard.

your personal spending habits will determine whether the percentage increase in your pay is good or bad for you.

Answer 4

Retail Price Index is constructed with retail prices of commodities often bought and sold in the retail markets and weighted by their trade volumes. A close cousin of this index is the Consumer price Index. this also takes retail prices as the basis for construction but weights are given according to importance of commodities in the consumption pattern of individuals. Now, inflation can be measured using both these indices. Additionally, it can be measured using the wholesale price index also. however, retail prices provide a more realistic picture of inflation. To be precise and brief, inflation measures the change in the price index at two given points of time. This change is expressed in percentage terms and is then called inflation or rate of inflation.
The current inflation rate in India, for example, is around 6% (it has exceeded this level to a rather disturbing figure just this week) and it is obvious that the wage rise of 3% does not seem to be adequate to take care of inflation. This may mean an erosion in your consumption basket to the extent of the shortfall in your compensation package.
In fact, real wage fully neutralizes the rate of inflation and you remain at the level and quality of consumption at which you started the period under review.

Answer 5

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