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Inflation Rises by 9.4%
Inflation is currently sitting at its highest rate in 40 years. But what is it? And why is it rising?
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What Is Inflation?
Inflation is the rate at which the price of goods (e.g. food) and services (e.g. haircuts) are rising. So, for example, if a £1 loaf of bread increases by 10p, then the inflation for that loaf is 10%.
Each month, the Office for National Statistics (ONS) select over 700 items from their virtual ‘shopping basket’, which is representative of household spending habits. The price of these goods are compared to the price on the same day last year and, once adjusted for their respective weightings, produces the Consumer Prices Index (CPI). CPI is a leading measure of UK inflation and has a target of 2.0%.
Target 2.0%
The Government aims to keep inflation at 2.0%. Maintaining a certain level of price stability contributes to sustainable economic growth whilst avoiding the negative impacts of inflation that is too high or too low. For example, if inflation is too high, consumers may struggle to afford living costs. However, if inflation is too low, consumers may expect prices to fall and reduce their spending, leading to companies failing.
The Current Rate
Inflation surged by 9.4% in the 12 months to June – more than four times the Bank of England’s target. Many factors have contributed to the increase, such as the rise in energy bills, fuel prices and food costs, to name a few. The Bank of England has warned that we may see a further rise in inflation over the next few months.
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