How to measure inflation

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    How to measure inflation

    Measured by

    • CPI (Consumer Price Index)
    • RPI (Retail Price Index)
    1. A base year or starting point is chosen. This becomes the standard against which price changes are measured.
    2. A list of items bought by an average family is drawn up. This is facilitated by the Living Costs and Food Survey.
    3. A set of weights are calculated, showing the relative importance of the items in the average family budget – the greater the share of the average household bill, the greater the weight.
    4. The price of each item is multiplied by the weight, adjusting the item’s size in proportion to its importance.
    5. The price of each item must be found in both the base year and the year of comparison (or month).

    This enables the percentage change to be calculated over the desired time period.

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