What is inflation and what is the current rate? – The Sun | The Sun

THE UK’s rate of inflation fell to 10.7% in November as petrol prices dropped easing some of the pressure on people's finances.

The consumer price index (CPI) measure of inflation dropped from 11.1% in October.

Prices are still rising, but at a slower rate than last month when they were rising at their fastest in 41 years.

With households bracing for the worst this winter, you may be concerned about how rising inflation will affect your household finances and the wider economy.

But we've broken down everything you need to know.

What is inflation?

Inflation is a measure of how much goods and services are worth in a given period.

This means how much the price of goods, such as food or televisions, and services, such as haircuts or train tickets, has changed over time.

It is known as a "backward looking measure", which means it indicates what has happened over the past year.

That obviously means it does not predict the future.

The rate of inflation is published each month by the Office for National Statistics (ONS).

It's a non-ministerial department which reports directly to Parliament.



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How does inflation impact prices?

Inflation doesn't impact prices, rather it is a measure of how prices have changed over the past year.

When it goes up, it means prices on everyday items, essentials, fuel and bills are higher.

That means millions of households' budgets being squeezed.

The latest publication looked at prices for the year to November 2022 compared to prices for the year to November 2021.

It reported that inflation had dropped, largely due to falling fuel prices.

Overall, the ONS said fuel prices rose by 17.2% in the year to November 2022, down from 22.2% in the year to October.

Prices at restaurants and hotels rose by 10.2% in November, the highest rate in more than 20 years, up from 9.6% the month before.

Food prices remain high though, rising at a rate of 16.5% in November compared to 16.4% the month before.

What causes inflation?

The inflation rate depends on how the prices of an imaginary basket of goods and services has changed over the past year.

Inflation is measured by the ONS, which collects around 180,000 prices of about 700 goods and services used across the country.

These prices are updated every month with officials visiting the same retailers each time to ensure consistency.

The prices are then weighted with more prominence being given to products people buy more often, such as fuel rather than postage stamps, for example.

There are numerous different measures of inflation that all track slightly different baskets of goods. The main measure is known as the Consumer Prices Index (CPI), and state benefits and the state pension also rise in line with it.

There is also a Consumer Prices Index including housing costs (CPIH) measure, as well as a Retail Prices Index (RPI) measure, which is used to calculate annual rail increases and student loan interest rates among other things.

What is the UK's current inflation rate?

The CPI measure of inflation dropped to 10.7% in Novembber 2022, the latest figures available show.

It's not clear yet whether inflation will climb higher.

The slowdown is good news for stretched households, and some experts believe inflation has now peaked.

What does inflation mean for prices and the economy?

Inflation matters because it affects the value of wages, savings and more. The Bank of England has a target inflation rate of 2%.

This target is set by the government, which believes a small amount of inflation at a stable level is good for the economy.

That's because it boosts economic output by encouraging spending, which in turn means businesses can afford to generate employment opportunities.

It can also make goods more attractive to foreign buyers as it can make their currency worth more, comparatively, to another countries.

However, if inflation is too high or goes up and down a lot, it can be hard for businesses to set the right prices and for people to plan their spending.

It can also mean the cost of essential goods and services can suddenly outstrip the buying power of people's wages – this is what we are seeing in the current cost of living crisis.

At the other end of the scale, it's also a problem if inflation is too low or negative, as people may put off spending because they expect prices to fall further.

What is deflation?

Deflation – or negative inflation – is when the rate of inflation falls below zero.

This can happen when the supply of goods is higher than the overall level of demand. It can also be triggered by lower production costs, or a shortage of money in circulation.

The UK was last in deflation territory in 2015, and though some experts speculated we could see negative inflation as a result of coronavirus pressures on the economy, the latest rise in inflation makes this less likely.

This would mean lower prices for consumers, which on the surface is a good a thing.

But the Bank of England points out that when prices fall, people often don't make purchases as they hope costs will fall further.

And when people stop buying, less money is going into businesses and the economy, which can lead to recession, wage cuts and job losses.

How can I protect my finances against rising inflation?

The best way to beat the price hikes as inflation soars is to check your finances and see where you can cut costs.

Find a high interest savings account if possible to try and make sure your money is growing in line with inflation.

If you're looking for ways to save money on your next Aldi shop, we reveal all here.

Plus, thousands of households can slash their water bills by half with a £135million support fund.

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