- Project plans
- Project activities
- Legislation and standards
- Industry context
Last edited 13 Jan 2017
Inflation is the rate at which the price of goods and services rises, and as a result, the purchasing power of currency decreases. In order to maintain the stable functioning of the economy, the government aims to limit the rate of inflation and avoid deflation (negative inflation).
The inflation rate is reported as the annual percentage growth of a broad index of prices representative of the economy as a whole. Inflation rates vary from year to year and from currency to currency.
In the UK, the predominant measure of inflation is the Consumer Price Index (CPI). This is the rate at which the prices of goods and services purchased by households rise or fall. The Consumer Price Index was first published in 1996 as the Harmonised Index of Consumer Prices.
There are a number of other measures of consumer price inflation including:
- CPIH. A relatively new measure of UK consumer price inflation that includes owner occupiers’ housing costs.
- Retail Prices Index (RPI). A measure of UK inflation that has historically been used for a wide range of purposes, such as the indexation of pensions and rents and index-linked gilts.
- RPIJ. A variant of RPI which is calculated using a geometric (Jevons) formulae, adopted following the National Statistician's decision that the RPI does not meet international standards.
- Alcoholic beverages and tobacco.
- Clothing and footwear.
- Food and non-alcoholic beverages.
- Furniture, household equipment and maintenance.
- Housing, water, electricity, gas and other fuels.
- Miscellaneous goods and services.
- Recreation and culture.
- Restaurants and hotels.
The index must be representative and up-to-date and therefore the goods and services included are reviewed each year. The information used to determine the contents includes surveys of household spending, external market research and feedback from price collectors.
As more is spent on certain items than others, the components of the index are ‘weighted’ to reflect the importance of different items and the amount spent in different regions and in different types of shops.
Once the price information has been checked and processed, the price indicators are combined. The changes in the prices of services and goods are measured by undertaking a comparison of their levels in the preceding year. They are then weighted to produce an overall annual price change. The annual rate of inflation is the percentage change in the latest index, compared with the value recorded the year before.
Each month, the figures are published on the Office for National Statistics website.
Fluctuations are a way of dealing with inflation on large construction projects that may last for several years. On smaller projects, the contractor will be considered to have taken into account inflation when calculating their price (a firm price). However, on the larger projects, the contractor may be asked to tender based on current prices (prices at an agreed base date) and then the contract makes provisions for the contractor to be reimbursed for price changes to specified items over the duration of the project (a fluctuating price).
See Fluctuations for more information.
 Related articles on Designing Buildings Wiki.
- Base date.
- Cash flow estimate.
- Contract conditions.
- Contract sum.
- Procurement route.
 External references
Featured articles and news
Whole-life costs consider all costs associated with the life of a building, from inception to disposal. Find out more here.
Reports emerge of injuries caused by Apple employees colliding with the campus' glazed walls.
The winners of NIC's ideas competition on transforming the Cambridge to Oxford arc discuss their concept.
Create new habitats and improve air quality and wellbeing.
New report provides 12 key actions which could close the structural talent gap in the construction industry.
These can be used to find out whether a proposed development is likely to be approved. Read more here.
Studying a built environment degree? Check out our helpful student resources section.
New BRE research paper explores how blockchain technology can benefit the built environment industry.
Timber is a natural carbon sink, but it must not end up in landfill at the end of its useful life.
BSRIA has collaborated with the Department of Health on research into air permeability in isolation rooms.