What is the CPI and how is inflation calculated?

The Consumer Price Index (CPI) measures the average change in the prices of goods and services bought "for the purpose of consumption" in the UK.

The CPI forms the basis for the Government’s inflation target that the Bank of England’s Monetary Policy Committee is required to achieve.

Each month the Office for National Statistics (ONS) gathers over 100,000 prices of goods and services from a range of retailers, including online.

Prices are updated every month with the same retailers visited to monitor identical goods.

These prices are then combined using information on average household spending patterns to produce an overall prices index.

The CPI also takes into account how much we spend on different items giving items we spend more on more weight in the calculation, for example we tend to spend more on fuel than on postage stamps. So a change in fuel price will impact on inflation more than a change in the cost of stamps.