The lesser-known inflation measure that could hike your bills by 17.7%

RPI is used to calculate student loan interest, train fares and some mobile bills

The Retail Prices Index (RPI) measure of UK inflation could hit ‘astronomical’ levels this year, causing a sharp rise in bills, a think-tank has warned.

According to the National Institute of Economic and Social Research, RPI could hit 17.7% towards the end of the year. 

RPI, which stood at 11.8% in June, is used to set rail fares, student loan interest and some mobile and broadband bills. 

While this may be bad news for your bills, it doesn’t necessarily mean you’ll have to pay the full percentage rise, as some price increases have already been capped. 

Here, Which? explains how RPI is set and how you can save money on your bills.

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How is inflation measured?

Inflation gives us an idea of how much prices have changed over a 12-month period and is used to determine percentage increases for some benefits, bills and other prices.

As it stands, there are three main ways of measuring inflation: RPI, CPI and CPIH.

Consumer inflation is measured by taking a ‘shopping basket’ of around 700 goods and services each month and monitoring how the price changes. 

Retail Price Index (RPI): measures the changing prices of a basket of goods and services, including mortgages and interest payments and council tax. It is no longer classified as an official national statistic.

Consumer Price Index (CPI): this is the headline measure of inflation, used by the government in its price inflation target. It tracks the overall price changes for the basket of goods and services. 

CPIH: Tracks the same basket as CPI, but also takes into account the costs associated with owning a home. 

What are the current rates of inflation?

The latest inflation figures released by the Office for National Statistics (ONS) cover price rises in June 2022, when RPI was markedly higher than CPI and CPIH. 

  • CPI: 9.4%
  • CPIH: 8.2%
  • RPI: 11.8% 

Find out more: inflation hits 9.4% in June

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What's the problem with RPI?

As the figures for June show, RPI tends to be much higher than CPI and CPIH. 

The ONS says RPI is a ‘very poor’ measure of general inflation, as it can greatly overestimate and underestimate changes in prices and how these changes are experienced.

It also criticised the mathematical formula used to calculate RPI, which is different to CPI and CPIH. 

In fact, in 2013 it lost its status as a national statistic and is now only used as a legacy measure because so many things are linked to it throughout the economy, such as defined benefit (DB) pensions. 

In November 2020, the government announced plans to overhaul RPI, and in 2030 it will be replaced with CPIH. In the meantime, it will continue to be used.

How is RPI used to determine your bills?

Some bills, such as mobile phone contracts, tend to go up by the RPI figure, whereas several government benefits such as the state pension and universal credit increase by CPI. 

Here, we’ve listed which bills are impacted by the RPI figure and what you can do to save money.

Mobile bills

How bills are set  

Many mobile network providers increase your bill annually, in line with or beyond inflation. 

Provider ID Mobile raises your bill each April by the RPI rate published in February (ie January's RPI figure) - this year it was 7.8%. 

Both O2 Mobile and Virgin Mobile raise bills each April by the same month's rate of RPI, plus an additional 3.9% - which came to 11.7% this year. 

Other mobile providers, including BT Mobile, EE, Plusnet Mobile and Vodafone, use the CPI figure to increase your bills, although they also tack on an additional 3.9%. 

How to save

If you've recently signed up to a mobile  contract, then there is not much you can do to reduce your bills without paying expensive termination fees. 

However, if you’re struggling to afford them, speak to your provider. Both mobile and broadband providers have agreed new commitments to help customers during the cost of living crisis.

If you've finished or you're nearing the end of your contract, think about switching to a rolling contract, which allows you to leave with just 30 days notice if you see a better deal elsewhere.

You could also consider a SIM-only contract with a provider that does not raise prices annually, such as Giffgaff, Smarty, Utility Warehouse and Lebara. 

Broadband bills

How bills are set

Most broadband providers will increase your bill annually by CPI, instead of RPI. 

BT, EE Broadband, John Lewis Broadband, Plusnet and Vodafone increase annual bills in April, by the CPI figure published in January plus 3.9%. This meant a 9.3% price hike for thousands of customers.

TalkTalk raises its bills using the same CPI figure plus 3.7%.

Shell Energy Broadband’s contracts state prices increase by the CPI figure plus an additional 3%. However, this year it postponed its price rises until July, and reduced the hike to 6.1%, when it usually would have been 8.4%.

Our recent analysis found 5.7m households are struggling to afford essential telecoms services, including broadband and mobile phone packages during the cost of living crisis 

How to save

It’s worth keeping this annual hike in mind when selecting a broadband contract. For example, if you sign up to an 18 or 24-month contract with any of these providers, you could end up paying an extra £20-£40 in the first year and £30-£80 in the second. 

If you’re out of contract, shop around for a better deal. Zen Internet, Hyperoptic and SSE all promise to keep your tariff the same for the duration of your contract.

You may also be eligible for a social tariff, which are special low-cost broadband deals offered to customers receiving benefits such as universal credit and pension credit.

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Rail fares

How bills are set

The government regulates around 45% of all rail fares.  

Price rises for the following year's fare increases are usually set using July’s RPI figure plus 1%, with the rise coming into force the following January. 

However, in 2022 this increase took place in March to give passengers more time to buy cheaper season tickets at the previous rate. The government also capped the annual fare increase to 3.8% - this was July's RPI rate and didn't include the extra 1%.

Regulated fares include season tickets on most commuter journeys, some off-peak return tickets on long-distance journeys, and anytime tickets around major cities.

How to save

You have a few options for saving money on rail fares. 

Next year’s rise hasn't yet been confirmed, but July's inflation figures are due to be reported on 17 August. If the government pushes the fare rises back until March again, you would have a few months to buy your annual season ticket at the lower price.

You could also consider a railcard, which can save you up to a third on fares - most cost £30 for the year.

It can also be worth buying rail tickets in advance, as well as 'splitting' your tickets into several shorter journeys.

Student loan interest

How bills are set

Students on Plan 2 and Plan 3 loans are impacted by RPI. 

If you’re from England or Wales and went to university on or after September 2012, you’ll be on a Plan 2 student loan, and if you’re a postgraduate student you’re on Plan 3. 

The interest on Plan 2 loans is RPI plus 3% when you’re studying and until the April after your course. After this point, the interest rate depends on your income in the current tax year.

IncomeThe interest you'll pay
£27,295 or lessRPI
£27,296 to £49,130RPI plus up to 3%
Over £49,130RPI plus 3%

The interest on Plan 3 loans is RPI plus 3%. 

The interest rate is usually set on 1 September each year, based on the RPI of the previous March.

The RPI this March was 9%, which meant the highest earners faced student loan interest of 12% (RPI+3%). However, as part of student loan legislation the ‘Prevailing Market Rate’ cap means that student loan interest rates cannot be higher than what commercial lenders are charging on the open market. When this happens, the government caps student loan interest. 

The government recently confirmed that these interest rates would be set at 6.3% for borrowers between 1 September and 30 November, and 7.3% from 1 December 2022 to 31 August 2023.

We’ve got plenty of guides on how repayments work for students in England, Wales, Northern Ireland and Scotland

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How to save

The key thing about student loan interest is it doesn’t impact how much you repay each month. 

You pay off your student loan as a percentage of what you earn above a certain threshold, and if you earn less than the threshold you don’t pay anything back. 

For example, the threshold annual income for Plan 2 is £27,295. Therefore if you earn £30,000 before tax, you’d take away this threshold, leaving you with £2,705 - of which you’ll pay 9%, which is £243.45. This equates to just over £20 being repaid each month. 

After a certain number of years - depending on the plan that you're on - outstanding debt will be written off. 

The Institute of Fiscal Studies has estimated that only about a quarter of students will repay their student debt in full.