Inflation

It Matters How It’s Measured

It seems to be a fact of life. The statement “the only certain things are taxes and death” should be amended to included rising costs.

Virtually everywhere you turn companies are increasing prices to customers, usually justified by “increased production cost” or similar. But how are those increases calculated? Almost universally by using the Retail Price Index (RPI).

But wait; incomes, in the form of salaries, pensions and even benefits, are also increasing. However, with one very important difference. These are calculated using the Consumer Price Index (CPI).

What’s the difference? A great deal! The CPI is always lower than the RPI, which in simple terms means that increased income always falls behind increased prices – so consumers are getting poorer!

Companies should remember that when they use the “rising costs” excuse customers will interpret that as “increased profit”. Another way for the government to cut the spending power of the average consumer.

Aren’t we lucky to have such a thoughtful prime minister…

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