Public and Commercial Services Union

There are a number of inflation measures both for consumers and corporations. The three that are dealt with below are the Consumer Prices Index (CPI), the Chancellor’s preferred index, its European equivalent the Harmonised Index of Consumer Prices (HICP) and the Retail Price Index (RPI).

They are all a measure of changes in the costs of a representative basket of goods and services that is regularly updated to keep up with consumer trends.

Traditionally the key difference between these measures is that CPI is the UK harmonised inflation index and does not include housing costs such as mortgage interest and council tax but does include rents.

The RPI is the UK’s traditional inflation measure and measures retail price increases including owner occupier’s housing costs. It has a domestic market focus. It is more commonly used in pay bargaining. However it is used less and less and has lost its place in the media as the normal measure of inflation so if you look at inflation on the BBC website for example it will usually refer to CPI.

Consumer Prices Index (CPI)

The CPI is harmonised to European measures to a degree (HICP). It often has a similar rise to the RPIX figure (RPI excluding mortgages).

It is usually lower than other measures as housing often drives the RPI but currently prices are rising due to other pressures. This little known measure is used for pay bargaining for PCS members in Capita.

Differences between CPI and RPI

The RPI focuses on the core UK population excluding the top 4% income and those pensioners who rely on benefits; the CPI includes all private households including foreign visitors and students.

The commodity baskets also differ for example, the CPI and RPI treat transport differently. The RPI looks at buying a motor vehicle, maintaining it, tax and insurance, petrol and oil as separate items, the CPI looks at the purchase of a new or second hand car or motorbike, then insurance under a separate item.

Whenever the index costs are rising, it is important for pay rises to keep pace.

Retail Price Index (RPI)

RPI is the UK’s traditional inflation measure and measures retail price increases including owner occupier’s housing costs. It has a domestic market focus. It is more commonly used in pay bargaining. It has a new (from March 2010) measure for mortgages now an average of the rates for three different kinds of mortgage over the longer term this is predicted to keep the overall inflation figure lower. In 2009 we had 9 months of negative inflation so we cannot rely on always having a positive figure to use in bargaining.

Sometimes it is necessary to look at a personal inflation figure using the BBC personal inflation or National Statistics calculator feeding in the figures of a typical member in the particular bargaining area.

The current situation

As at April 2010 Inflation is rising on all measures. Visit the Office of National Statistics website for the current figures and if you are involved as a member of a PCS Bargaining team then make sure you are on the email list and text list for up to date news on inflation and pay bargaining from the National and Equal Pay Unit.