Definition of Tax and Price Index- TPI

TPI is primarily used in United Kingdom. This is a figure or percentage showing how much a consumer’s gross income needs to be changed and adjusted keeping in account the rate of change in inflation and taxation.

Explanation of Tax and Price Index- TPI

Let’s assume Doe has $50,000 in disposable income in 2014. In 2015, inflation increases by 2% and Doe’s taxes increase by 5%, which dramatically decrease the purchasing power of Doe’s $50,000. To keep up, his $50,000 would need to increase by 7%. Similarly, the tax and price index measures, in more sophisticated and accurate terms, how much consumer incomes would need to increase in order to have the same purchasing power. Because the measure is an index, its calculations are relative to a historical year.