As I understand it, the main reason CPI is constantly lower than RPI, apart from the various exclusions of housing costs etc,) is that the CPI uses a geometric mean in the calculations, rather than the arithmetic mean of the RPI. What is the logic for using a geometric mean, apart from the obvious reason that it saves the government money?
I didn't know that. Can you cite a reference?
IMHO arithmetic mean can overstate growth values under certain circumtances so really they should use geometric mean for all of these figures.
It's in the interest (pardon the pun) of the government to keep the CPI as low a possible to maintain the illusion that the ecomony is in a better state than it actually is.
Heard it on Money Box or maybe it was in the FT. Probably the former.
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