Aims The main aim of this section is to discuss what the UK Government price indices (CPI & RPI) measure and how they are calculated.
How often have you read statements like these in the newspapers or heard them on the radio? Have you ever wondered how ‘inflation? is measured or precisely what is meant by a statement such as ‘prices rose by 0.4%?? In Section 6, you will see that ‘rates of inflation? are often calculated in the UK using an index of prices paid by consumers, the Consumer Prices Index (CPI), or another slightly different index, the Retail Prices Index (RPI). These indices may be used to calculate the percentage by which prices in general have risen over any given period, and (roughly speaking) this is what is meant by inflation. But what exactly do these price indices measure and how are they calculated? These are the questions that are addressed in this section.
Pause for a moment to think about what you already know about the CPI and/or the RPI. Write down what you think the CPI and/or the RPI is and how you think they might be used to measure ‘inflation?.
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