The Retail Prices Index: A Short History

The UK's Retail Prices Index (RPI) has a controversial history, from being the dominant measure of inflation to being discredited. Despite this, it is still widely used and supported by stakeholders. This Palgrave Pivot examines the index's development and its current position, making it an important read for those interested in inflation measurement.

Format: Paperback / softback
Length: 137 pages
Publication date: 01 July 2021
Publisher: Springer Nature Switzerland AG

This Palgrave Pivot delves into the rich history of the UK's Retail Prices Index (RPI), tracing its origins from the aftermath of World War II to its contentious present-day status. The authors meticulously explore the evolution of the index's methodology and the political and social backdrop that shaped its development. They shed light on how the RPI, once the dominant measure of inflation for decades, has transitioned to its current position as an officially discredited index. Despite this setback, the RPI continues to hold widespread usage and enjoys significant support from various stakeholders, including various branches of government. This comprehensive analysis is a must-read for anyone seeking to understand the intricacies of both the arguments for and against RPI and the likely trajectory of inflation measurement in the future.

Introduction:
The Retail Prices Index (RPI) has been a crucial tool for measuring inflation in the UK since its inception in 1947. However, its historical development has not been without controversy, with debates surrounding its accuracy, methodology, and political implications. This Palgrave Pivot aims to provide a comprehensive review of the RPI's history, examining both the methodological changes and the political and social context in which it has evolved.

Methodological Changes:
Over the years, the RPI has undergone several methodological changes. Initially, it was based on a basket of goods and services, including food, clothing, and housing. However, in the 1970s, the index was modified to include a larger range of goods and services, such as transportation and entertainment. This change was intended to make the RPI more representative of the changing consumer spending patterns in the UK.

However, these methodological changes also led to concerns about the index's accuracy. Critics argued that the inclusion of a wider range of goods and services could introduce bias and make the RPI less reliable as a measure of inflation. For example, the cost of housing has a significant impact on the RPI, but it is not directly affected by changes in the price of clothing or transportation. This can lead to an overestimation of inflation, particularly in periods of rising house prices.

To address these concerns, the Office for National Statistics (ONS) introduced a new methodology for calculating the RPI in 2013. The new methodology includes a weighting system that aims to reduce the impact of housing costs on the index. The weighting system is based on the average price of housing in each region of the UK, and it is adjusted periodically to reflect changes in the housing market.

Despite these efforts, there are still concerns about the accuracy of the RPI. Critics argue that the weighting system may not be sufficiently robust and that the RPI still overestimates inflation in periods of rising house prices. Additionally, there are concerns about the inclusion of certain goods and services in the index, such as mobile phone contracts and private healthcare, which may not reflect the spending patterns of most consumers.

Political Context:
The RPI's history has also been closely linked to the political context in which it has evolved. The index has been used as a tool for manipulating public opinion and influencing government policy. For example, in the 1970s, the Conservative government used the RPI to argue for wage increases and to justify increases in government spending. However, in the 1980s, the Labour government introduced a new index, the Consumer Prices Index (CPI), which was designed to be more accurate and reliable than the RPI.

The RPI has also been used as a political weapon by opposition parties. For example, in the 1990s, the Conservative Party used the RPI to argue for cuts in government spending and to criticize the Labour government's economic policies. However, the RPI has also been criticized by opposition parties for being inaccurate and unreliable.

Conclusion:
In conclusion, the history of the RPI is a complex and multifaceted tale. While the index has played a crucial role in measuring inflation in the UK, its methodological changes and political context have led to concerns about its accuracy and reliability. Despite these concerns, the RPI continues to be widely used and attracts significant support from various stakeholders, including several areas of government. It is important to continue to monitor the RPI and to consider alternative measures of inflation, such as the CPI, to ensure that the measurement of inflation remains accurate and reliable.

Weight: 219g
Dimension: 210 x 148 (mm)
ISBN-13: 9783030465650
Edition number: 1st ed. 2020