The Office for National Statistics produces two main measures of consumer price
inflation: the Consumer Prices Index (CPI) and the Retail Prices Index (RPI).
The RPI was introduced in 1947 and was made
official in 1956. The CPI was introduced in 1996 as the Harmonized Index of
Consumer Prices (HICP).
In May 1997, the new government handed control
over interest rates to the politically-independent Bank of England Monetary Policy Committee (MPC). In few
words, the committee is given the responsibility of adjusting interest rates in
order to meet the inflation target set by the Chancellor. (related article here)
In December 2003 the National Statistician
decided that the UK version of the HICP would be renamed the Consumer Prices Index (CPI) and the UK
inflation target would in future be based on the HICP, replacing the Retail Prices Index excluding mortgage
interest payments (RPIX).
The difference between the RPI(X) and the CPI
is a bit complex and out of the topic
of this article, where I will consider the CPI as the most important data,
since it is the BOE’s inflation target and also for length purposes.
Actually the CPI tracks th…
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