Civil Engineering Reference
In-Depth Information
The contents of the baskets used for the RPI and CPI are very similar but
not identical. The RPI basket includes several items chosen to represent housing
costs, including mortgage interest payments, council tax and rent, all of which are
excluded from the CPI. In contrast, the CPI basket includes the fees paid by people
living in communal accommodation such as nursing homes, retirement homes and
university halls of residence. These so-called institutional households are excluded
from the RPI, as its focus is exclusively on private UK households. In addition, the
CPI also includes some items to represent costs faced by foreign visitors to the UK.
These subtleties form the main technical differences between the two indices.
The more distinct difference between the indices is in their use and origin. The
RPI has been established as a means of measuring price inflation in the UK since
1947. The CPI has its origin in a system that is common to the European Union
(EU). It was previously called the
harmonised index of consumer prices
, and it
allows direct comparisons to be made with the inflation rates in other member states
of the EU. It became the official index used by the UK government to target inflation
in January 2004. The CPI tends to produce a lower rate of inflation than the RPI.
For example, if CPI is used to compile a version of
Table 14.1
showing UK inflation
rates, the average rate for the last two decades would be 2.7 and 2.1 respectively; on
average, a difference of approximately 0.6 per cent.
In order to distinguish between the two it might be useful to think of a headline
rate and an official rate. The
headline inflation rate
is the one that appears in the
press and usually refers to the RPI. The
official rate of inflation
forms the target for
government purposes and, at present, is the CPI. Finally a passing reference should
be made to the retail price index excluding mortgage interest payments (RPIX),
as this had been the official rate for government purposes from January 1998 to
December 2003. The three measures are compared in
Table 14.2.
Table 14.2
Summary of inflation indices
Inflation measured by the consumer price index, the UK government
measure since 2004.
CPI
RPI
Inflation measured by the retail price index, in use since 1947.
RPI
excluding
mortgage interest payments, was the UK government
measure from 1998-2003.
RPIX
Building Cost Index and Tender Price Index
None of the cost of living indices - CPI, RPI, and RPIX - reflect the prices facing
builders and their clients. These indices only indicate the movement in prices
of goods and services purchased by the average household, they do not take
into account the movement of prices affecting construction. The property and
construction consultants Davis Langdon have tracked movements in the input costs
of construction work in various sectors since 2000 and these highlight how the
rate of increase in construction costs has considerably outstripped the consumer
