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Retail price index


The index number which attempts to measure changes in the cost of living. It is frequently quoted with reference to inflation and can be used to evaluate real as opposed to nominal changes in prices. The current price can be restated in terms of the value of money in another chosen year by the use of the two relevant index numbers. When this is done the purely inflationary increase can be eliminated and the real change in price over the period can be seen. This process is slowly coming to be accepted by accountants as a method of eliminating the often dangerously misleading trading results inherent in traditional historical cost accounting and annual reports based on them.
Partly for convenience and partly because of changes in consumer spending patterns, the official retail price index is sometimes scrapped and restated in terms of a later base year. This is not merely a matter of changes in weighting, which are made annually, but relates to more fundamental changes in such things as quality and public taste. Such changes occurred in the U.K. and were reflected in the alteration of the base year in 1956,1962,1974, etc. Although the new indices can still be mathematically related to the old, fundamental ‘basket’, changes may make comparisons inexact.


Reference: The Penguin Business Dictionary, 3rd edt.