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Retail Prices Index
(RPI)
. The RPI measures the percentage changes month by month in the average 
level of prices of the commodities and services, including housing costs, purchased by the great majority 
of households in the UK. The items of expenditure within the RPI are intended to be a representative list 
of items, current prices for which are collected at regular intervals. 
Since 2003, the Harmonised Index of Consumer Prices (HICP) has been used as the basis for the UK's 
inflation target. The UK HICP is called the 
Consumer Prices Index (CPI)
. The CPI excludes most 
housing costs.
5.3.2 The underlying rate of inflation
The term 
underlying rate of inflation
is usually used to refer to the RPI adjusted to exclude mortgage 
costs and sometimes other elements as well (such as the local council tax). The effects of interest rate 
changes on mortgage costs help to make the RPI fluctuate more widely than the underlying rate of 
inflation.
RPIX
is the underlying rate of inflation measured as the increase in the RPI excluding mortgage interest 
payments. Another measure, called 
RPIY
, goes further and excludes the effects of sales tax (VAT) 
changes as well. 
5.4 Causes of inflation 
The following can cause inflation: 

Demand pull factors 

Expectations 

Cost push factors 

Excessive growth in the money supply 

Import 
cost 
factors 
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PART A: THE BUSINESS ORGANISATION, ITS STAKEHOLDERS AND THE EXTERNAL ENVIRONMENT 
 
66
 
5.4.1 Demand pull inflation 
Demand pull inflation
arises from an excess of aggregate demand over the productive capacity of the 
economy.