The Retail Price Index, also known as RPI is one of the most common measures of inflation in the United Kingdom. The average modification from month to month in the prices of goods and services bought by most households in UK is measured by RPI. The data is published once in a month by the UK office for national statistics to record the change in prices in the country. The RPI has been originated from a combination of 120,000 different prices which are assembled all over the nation. The RPI has now been legitimately replaced by the Consumer Price Index or CPI but it is still computed and indexed for different purposes. It is necessary to know how to calculate retail price index for assuming your household expenditure.
Steps for calculation
• Determine a base against which you are going to compare future RPI numbers. The United Kingdom Retail Price Index has been in practice since June 1947. The base can be anything:
o The year you were born
o The month in which the economic depression started
o The real number from the beginning of RPI recording
• You will need at least two points in time for comparison to track inflation.
• Assemble the statistical base of goods and service costs for your base period. The UK government does this collection through polling the prices of 600 different items which includes staples like milk and bread. These items are obtained from 120000 different retail outlets in 150 different places of the United Kingdom.
• Compute base RPI. This calculation is done by totaling up the total prices of the different products and dividing the total cost by the total number of products.
• Determine the duration of time for which you will compare the base average. The UK office for national statistics has RPI data in hand for every month since June 1947.
• Assemble the costs of goods and services for your comparison. This calculation is done by adding up the total prices of all products measured and dividing the total cost by the total number of products to obtain an average.
• Compute the percentage change in RPI for the given duration of time by deducting your base RPI from your comparison RPI and then dividing it by your comparison RPI.
• At last multiply that figure obtained now, times 100 to obtain the percentage change.
I hope this article would have proved helpful for you in context of calculating retail price index.
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