The measure used by Government to set the inflation target for the Bank of England. It is different to the Retail Prices Index as it does not reflect inflation associated with housing costs (e.g. mortgage interest and council tax). This price index is often shortened to CPI.
CPI is calculated as follows. Firstly a basket of goods are selected based on the spending patterns of the average household and then weights are attached to each good reflecting the importance of that good to families. Then several price surveys are carried out to work out the average prices of these goods. The CPI can then be compared year on year with subtle changes to the baskets of goods to monitor how the overall inflation rate in the economy is developing and changing.
Below is a figure that traces the annual CPI percentage change for the UK from 2005.
