CPI vs RPI: Key Differences, UK Inflation Impact & Which Metric Matters
CPI tracks the price of a fixed basket of goods and services; RPI adds mortgage interest and house prices, so it usually reads higher.
People mix them up because headlines often shout “inflation hits 10 %” without saying which yardstick. If your pay deal or rail fare is pegged to one index but you only glance at the other, you’ll feel short-changed or overcharged overnight.
Key Differences
CPI excludes housing costs and uses a geometric mean, making it lower and the government’s official target. RPI includes mortgage interest, uses an arithmetic mean, and is still baked into legacy rail fares and student-loan interest, so its higher figure still bites your wallet.
Which One Should You Choose?
For most day-to-day budgeting, CPI is the benchmark; it drives Bank of England rates and benefit uprating. If you’re negotiating a lease or checking your student-loan statement, look at RPI—because that’s the figure actually applied to your balance.
Examples and Daily Life
A 5 % CPI rise might lift your state pension next April, yet your rail season ticket jumps 8 % because it’s tied to RPI. Knowing which index rules each bill stops you from being blindsided twice in the same year.
Is CPI always lower than RPI?
Yes, by design; RPI adds housing costs and uses a formula that amplifies increases, so the gap averages about 1 % a year.
Which index do UK employers use for pay rises?
Most firms quote CPI or their own “cost of living” figure; only legacy contracts still specify RPI.