RBI explained


The current CPI measure of inflation does not properly reflect the impact of inflation since it fails to take account of the different spending patterns of different income groups. In addition, it ignores mortgage repayments which, whilst relatively low at present, are a major part of household spending. The Real Britain Index attempts to correct for that by providing a measure of inflation for each income decile in the population, from poorest to richest.

Using RBI as a measure shows that the experience of inflation for different income groups can vary pretty significantly from the official measure. In particular, poorer households will in general suffer a high rate of inflation than richer; and households in general will experience a higher rate, as CPI misses the substantial expenditure of mortgage payments. In a period of low inflation, as now, the differences both between income groups, and between the official and unofficial inflation measures, may not be especially great. But over time, these differences stack up, and in any case attempting to set pay increases based on the official CPI inflation measure will lead to a persistent decline in real living standards. Worse, this hidden decline will be more significant the poorer the individual or the household. As a matter of simple justice, pay awards for the lower paid should aim above the official rate of inflation, simply in order to correct for this in-built bias.

Share this page