Completing my three-part look into measuring inflation, I’ll focus on the impact of adopting the Consumer Prices Index (CPI) instead of the Retail Prices Index (RPI) as the government’s preferred measure of inflation in the UK. I began this series by analysing the basket of 650 goods and services used as a snapshot of UK household expenditure and how it has changed in 2011. Then I considered the differences between using RPI and CPI to calculate inflation and how the indices measured different things differently. Finally, I want to consider who loses most from the change to using CPI as the preferred inflation measure.

First, though, it’s important to remember that alternatives exist to the old method of measurement, RPI. These do not only include CPI; there are different variants of RPI that can be useful. One such variant is RPI-X, which is the same as the old method but excludes mortgage costs. This is one measure of so-called ‘underlying inflation’. Another of these is RPI-Y, which strips out the effects of interest rates and indirect taxation.

As these Biz/ed Glossary entries make clear, as interest rates are raised to try to curb inflation, so inflation (measured by RPI) rises. The same is true for indirect taxation such as VAT in the UK, which was increased in January to 20%. This is a policy problem for government keen to raise tax revenues but fearful of inflationary pressures. Seen in this light, opting to use CPI rather than RPI may seem understandable. But RPI is still quoted widely in the media and people realise that the headline rate of inflation used by government doesn’t reflect their own experience of price rises.

This is why individuals like to use such tools as this personal inflation calculator developed by the UK’s Office for National Statistics (ONS). These methods reinforce people’s inklings that they’re not being told the whole truth over price levels. But the ONS tool cannot hope to capture as good a picture of an individual’s spending habits as the overall measure using the basket of goods and services.

It is often dangerous to base specific expectations on general experience, although in choosing CPI over RPI the government offers a useful example. CPI often presents a lower inflation rate than RPI. It was chosen to facilitate international comparison. But it was announced last year that increases in benefits and some pensions will be based on CPI in future. A triple-lock will mean that the old-age pension will rise by the same level as earnings, CPI, or 2.5% per year, whichever is the greater.

Other benefits and the second state pension will rise by CPI only, meaning that income growth for individuals relying on these payments will be lower than otherwise would be the case. This has provoked complaints from the Royal Statistical Society, whose president, Professor David Hand has argued to the UK Statistics Authority that other EU countries produce their own national inflation indices alongside CPI, which is not necessarily the best measure for all purposes.

Clearly, CPI has been given priority over RPI in order to cut public spending on social security as part of the coalition government’s attack on the UK budget deficit. A growing number of economists and analysts doubt the need for this policy and fear the damage it will cause. But increasingly society may feel that those who are being told to shoulder the largest burden of the cuts will be those who are least able to pay.