What is Consumer Price Index (CPI)?

Full Definition

The Consumer Price Index (CPI) is the primary official measure of inflation in the United Kingdom, published monthly by the Office for National Statistics (ONS). It measures the average percentage change in the prices of a representative basket of around 700 goods and services that households typically buy, including food, clothing, housing costs, transport, and leisure. The basket is updated each year to reflect changing spending patterns. The Bank of England has a statutory target to keep CPI inflation at 2%, and if it deviates significantly the Governor must write to the Chancellor to explain why. CPI is used for a wide range of uprating decisions: it determines annual increases to many welfare benefits, it feeds into the State Pension triple lock (which takes the highest of CPI, earnings growth, or 2.5%), and it can affect some tax thresholds and public sector pay settlements. A higher CPI means the purchasing power of money is eroding faster, which generally leads the MPC to raise interest rates. Consumers and investors should be aware that CPI may not perfectly reflect personal experience of inflation, as individual spending patterns differ from the national basket. CPIH (which includes owner-occupier housing costs) is a related measure the ONS also publishes.