The UK government and UK Statistics Authority (UKSA) announced their response to the consultation on the reform to RPI methodology. There were two aspects to the reform announcement:
RPI methodology will change starting 2030.
The growth of RPI will be aligned with that of CPIH with no adjustment spread, or compensation to be offered to the holders of index-linked gilts.
RPI is the oldest measure of consumer price inflation in the UK and as such is widely used, but it has long been recognised that RPI is constructed using flawed methodology. This so called ‘formula effect’ has contributed to the difference between the RPI and the Office for National Statistics’ (ONS) preferred measure of consumer price inflation CPIH. As show on the graph below the historical difference between CPIH and RPI, called the wedge, has been averaging about -1% in the past decade: