- The Bank of England (BoE) defines inflation as “when prices rise and how quickly they do so is called the rate of inflation.”
- As noted by the BoE, inflation is measured monthly by the Office for National Statistics (ONS), which “checks the prices of about 700 items in a ‘basket’ of goods and services”, including “everyday items (eg a loaf of bread and a bus ticket) but also... much larger ones, such as a car and a holiday.”
- The rate of inflation is then calculated by comparing the overall price of the ‘basket’, the Consumer Price Index, with its price exactly one year ago.
- According to the BoE, small amounts of inflation are “helpful”, however “high and unstable rates of inflation can be harmful” as “if prices are unpredictable, it is difficult for you to plan how much you can spend, save or invest.”
- It comes as the ONS said the UK’s inflation rate held steady at 2.8 per cent for the year to May, a figure which came as a surprise to most economists, who had predicted a rise to 3 per cent or more.
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