There exist a puzzling array of differing inflation rates but only three that really matter to the man in the street.  They are CPI (Consumer Prices Index), RPI (Retail Prices Index) and CPIH (Consumer Prices Index including owner occupiers’ housing costs).  


None of them are an accurate measure of the true rate of inflation, especially not for you personally because they are all based on an average basket of goods and services for the average family.  What’s more, they are all flawed because some measures include housing costs and some do not.  It begs the question of how you can have a measure of inflation that doesn’t include housing costs? I will explain what this means to you as a consumer in this blog and why it matters.





As former Prime Minister Benjamin Disraeli once said: “There are three kinds of lies: lies, damned lies, and statistics.” It’s as true today as it ever was, especially when it comes to inflation.


It is staggering to consider that RPI contains a number of items that are excluded from the CPI and CPIH, including council tax, mortgage interest payments, house depreciation, buildings insurance, ground rent and other house purchase costs such as estate agents’ and conveyancing fees.  The official reason for no longer recognising RPI as the official rate of inflation in the UK is because it is calculated differently to CPI and CPIH by using the geometric mean which the government claims results in higher inflation.  The cynic in me thinks the RPI rate is higher than the other measures because it more accurately includes more relevant costs.


CPI excludes housing costs but you could argue it is more relevant for homeowners without a mortgage.  At least CPIH includes housing costs so arguably that is a better measure for people who rent a property rather than own it.  Approximately 50% of all homeowners in the UK do not have a mortgage so arguably CPI is a more accurate measure for them.  However, RPI would appear to be an even better measure for homeowners.


Then there is the issue of personal inflation rates which are never measured but are the most important measures of all.  You see all of these measures of inflation are based on an average basket of goods and services for the average family but of course, all families are different and have vast differences in what they spend their money on.  Depending on what you spend your money on your personal inflation rate could differ substantially from another person.





Interestingly you can calculate your personal inflation rate using this calculator provided by the Financial Times


This is a really useful tool as it enables you to create a more accurate picture of how much inflation is affecting you personally.


Two-thirds of mortgages are on variable rates so those mortgage holders will be experiencing far higher personal inflation currently than the one-third of people who have fixed-rate mortgages.  People with no mortgage on their property, currently 50% of all UK homes, will be experiencing no inflation on that element of their cost of living whereas renters will be experiencing high increases in their rents.


Another area where there will be large differences in spending is on energy costs.  Those people who own their homes and have solar panels, as well as storage batteries, will be experiencing far lower energy price inflation than those who do not have such installations.


Individuals who smoke, drink alcohol and drive traditional cars will also be experiencing far higher personal inflation in those areas than non-smoking, teetotal drivers of electric cars or non-car owners.





So there you have it.  Inflation is a very flawed measure but is not strictly relevant to any one individual because we each have our own personal inflation rate.  Find out what yours is and endeavour to reduce it by whatever practical ways you can do.  It will improve your cash flow and your life by reducing your financial stress and giving you greater peace of mind.  You know it makes sense.*


*Risk warnings

The value of your investment can fall as well as rise and is not guaranteed so you may not get back the full amount you invested. The contents of this blog are for information purposes only and do not constitute individual advice. You should always seek professional advice from a specialist.  All information is based on our current understanding of taxation, legislation, regulations and case law in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. This blog is based on my own observations and opinions.


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