Has Your Pay Kept Up With Inflation? How to Check

Which inflation measure to use for your pay

Start with CPI - the Consumer Prices Index (CPI)Consumer Prices Index: The ONS measure of UK inflation used by the Bank of England for its 2% target. It tracks prices of about 730 goods and services weighted by average household spending, excluding owner-occupied housing costs.. It tracks the prices of about 730 goods and services weighted by average household spending, and it is the measure the Bank of England targets at 2%. Most pay benchmarking uses CPI, whether stated or not.

The Consumer Prices Index including owner occupiers' Housing costs (CPIH)Consumer Prices Index including owner occupiers' Housing costs: The ONS's headline inflation measure since 2017. It adds a modelled cost of owner-occupied housing (rental equivalence) to CPI, so it is typically slightly higher. adds a modelled cost of owner-occupied housing on top of CPI. The Office for National Statistics (ONS) treats it as the headline measure of UK inflation. If mortgage or housing costs are a large share of your spending, CPIH may be more relevant to your situation.

The Retail Prices Index (RPI)Retail Prices Index: An older UK inflation measure that reads higher than CPI because of its arithmetic-mean formula. The UK Statistics Authority will align RPI with CPIH methods from February 2030. reads higher - typically 0.5 to 1 percentage point above CPI - because of a known formula effect. The UK Statistics Authority will align RPI with CPIH methods from February 2030, closing most of that gap. Until then, using RPI flatters how far behind you look. Several popular salary calculators, including Hargreaves Lansdown's, default to RPI without making that clear.

The difference is not academic. In the three months to March 2026, regular pay grew 3.4% in nominal terms. Deflate by CPI and real pay rose 0.3%. Deflate by CPIH and the same pay rose just 0.1%. Same pay, same period - different verdict on whether workers are keeping up. For what each measure includes and how the ONS constructs them, see the Real Cost of Living tool.

Work out your own real-termsA value adjusted for inflation so it reflects actual purchasing power rather than the cash amount. If your pay rose 3% but prices rose 4%, your real-terms pay fell. pay

The quick version: subtract the current CPI rate from your percentage pay rise. If the result is negative, your purchasing power fell.

Sarah earned £30,000 a year ago. She has been offered £30,900 - a 3% rise. CPI over the same period was 3.5%. Quick check: 3.0% − 3.5% = −0.5%. Her pay rise is a small real-terms cut - she can buy slightly less with the new salary than she could with the old one a year ago.

For a more precise figure, divide your new salary by one plus the CPI change as a decimal. Sarah's calculation: £30,900 ÷ 1.035 = £29,855 in last year's money - about £145 less than she started with. The CPI index values you need are in the ONS series D7BT (all items, 2015 = 100), published monthly.

Over longer periods, the effect compounds. A 1% real-terms gap each year adds up faster than it sounds - the same force that makes savings grow also erodes a salary that only rises by the headline rate.

What about the tax side? A nominal pay rise changes your Income Tax and National Insurance position too. That is a separate calculation - see the self-assessment guide to understand how pay flows through to your tax bill.

Is your pay rise actually a real cut?

The test is straightforward: compare your percentage rise with the current CPI rate. As of April 2026, CPI was 2.8%. A rise at or above that keeps pace; anything below is a real-terms cut, however good it looks on paper.

To stand still, your rise needs to match the inflation rate. To get ahead - actually better off than last year - it needs to beat it. Most people instinctively compare their rise with a round-number headline rather than the published ONS figure. Checking takes thirty seconds and tells you exactly where you stand.

None of this is financial advice - it explains the mechanics of real-terms pay so you can read your own position. If you need advice on a specific pay decision, speak to a qualified adviser.

The bigger picture

In the three months to March 2026, average regular pay across the UK economy was roughly flat in real terms - up 0.3% on a CPI basis and 0.1% on CPIH. Public-sector regular pay grew faster in nominal terms (4.8%) than private (3.0%), though much of that gap was catch-up after years of real-terms erosion. The broader story is that real pay barely moved through the early 2020s, despite headline figures that sometimes looked respectable.

For the full national picture - how average earnings have tracked against prices and how different spending patterns change the result - see the Real Cost of Living tool.

Primary sources: ONS Average weekly earnings in Great Britain: April 2026; UK Statistics Authority - Statement on the future of the RPI.