Q:

How is the retail price index calculated?

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Quick Answer

The retail price index, otherwise known as the RPI, is calculated by measuring the change over time in a sample of goods and services a typical household might buy each month. The retail price index serves to measure inflation of currency in the United Kingdom.

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Full Answer

The retail price index is published each month by the Office of National Statistics. Items that are most important to the spending patterns of an average household are given greater weight when calculating the retail price index. The retail price index is a specific variant of the consumer price index. The consumer price index emerged as a different measure of inflation in the United Kingdom in 1996.

The retail price index serves to aid policy makers in making decisions about tax allowances and state benefits. Additionally, the media typically reports on the yearly aggregation of the monthly retail price index. The retail price index was calculated for the first time in June of 1947. A variation of the retail price index, known as the RPIX, removes the cost of mortgage interest payments from the calculation of the statistic. The RPIX includes indirect taxes and local authority taxes. The standard retail price index is considered valuable because it is so general. The American equivalent of the retail price index is the consumer price index.

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