What type of average does the Retail Price Index (RPI) use?

The Retail Price Index (RPI) uses the arithmetic mean to calculate the average changes in the prices of a basket of commodities over time. This method involves summing the prices of the included items and dividing by the number of items, providing a straightforward and direct measure of average price changes. The arithmetic mean is particularly effective in this context because it allows for a simple aggregation of individual prices, making it easy to understand how the overall price level is changing.

The arithmetic mean is suitable for RPI because it is essential to account for all price changes equally, enabling an accurate reflection of inflation or deflation across a broad range of goods and services. This characteristic helps provide policymakers, economists, and the general public with a clear insight into economic conditions related to consumer prices over time.