RPI was first introduced in 1956, replacing the previous Interim Index of Retail Prices that had been in use since June 1947. It was once the principal official measure of inflation. It has been superseded in that regard by the
Consumer Price Index (CPI). The RPI is still used by the government as a base for various purposes, such as the amounts payable on index-linked securities, including
index-linked gilts, and social housing rent increases. nor, from April 2011, as the basis for the indexation of pensions of former
public sector employees. , the UK state pension is indexed by the highest of the increase in average earnings, CPI or 2.5% ("the triple lock"). The highest annual inflation since the introduction of the RPI came in June 1975, with an increase in retail prices of 26.9% from a year earlier. By 1978, this had fallen to less than 10%, but it rose again towards 20% over the following two years before falling again. By 1982, it had fallen below 10% and a year later was down to 4%, remaining low for several years until approaching double figures again by 1990. Aided by a
recession in the early 1990s, increased interest rates brought inflation down again to an even lower level. From March to October 2009, the change in RPI measured over a 12-month period was negative, indicating an overall annual reduction in prices, for the first time since 1960. The change in RPI in the 12 months ending in April 2009, at −1.2%, was the lowest since the index started in 1948.
Housing associations lobbied the government to allow them to freeze rents at current levels rather than reduce them in line with the RPI, but the
Treasury concluded that rents should follow RPI down as far as −2% per annum, leading to savings in
housing benefit. In February 2011, annual RPI inflation jumped to 5.1% putting pressure on the Bank of England to raise interest rates despite disappointing projected GDP growth of only 1.6% in 2011. After a thorough review, in 2012 the National Statistician's Consumer Prices Advisory Committee (CPAC) determined that due to the use of the
Carli formula in certain subcomponents, the RPI is biased upwards compared to other indices by a "formula effect" of roughly one
percentage point. CPAC concluded that "the use of the Carli formula is no longer appropriate" due to the weak axiomatic properties of the Carli method. (The weak property is the fact that after a price bounce and a subsequent full return to original prices, the Carli method shows positive aggregate inflation.). In 2013, following a consultation on options for improving the RPI, the National Statistician concluded that the formula used to produce the RPI does not meet international standards and recommended that a new index known as
RPIJ be published. Subsequently, ONS decided to no longer classify RPI as a "national statistic". However, ONS will continue to calculate RPI, among several versions of the inflation index, in order to provide a consistent historic inflation
time series. The index factors continue to be used to adjust for inflation in the calculation of chargeable (capital) gains for inclusion in the tax computation for entities subject to corporation tax in the UK. In January 2018,
Mark Carney, Governor of the Bank of England, said that RPI should be abandoned. In November 2021, inflation has risen faster than projected to its highest level in nearly a decade, putting pressure on the Bank of England to increase interest rates. According to data from the ONS, the annual rate of the CPI increased to 4.2 percent in October, up from 3.1 percent in September. Inflation surpassed the Bank of England's target of 2% and was higher than the 3.9 percent predicted by experts. Higher rates for transportation, restaurants, and hotels mainly contributed to the price increase in October. ==Calculation==