Data from the Office for National Statistics (ONS) showed that the inflation rate tripled month-on-month
What does inflation mean?
Inflation is an economic metric that shows how much the price of goods and services has increased over a period of time.
In the case of the CPI, the period used is one year – so the figure of 9.4% means that prices are on average 9.4% higher than in June 2021.
All Western countries use inflation to track how their economies are performing.
If the rate is high – as it is now – it means the cost of living for people across the UK is likely to rise, which means the value of money will fall.
Inflation rates are constantly changing due to several factors, the most important of which are:
- Oil prices: higher oil prices make goods more expensive because it is more expensive to get them from A to B
- Energy prices: Higher energy prices make the production of goods and services more expensive
- Government policy: larger tax cuts can increase spending, which can push up prices
The ONS publishes UK inflation rate updates every month.
These numbers have been in the news a lot so far in 2022 as inflation has skyrocketed.
Why is inflation so high?
There are several important reasons why inflation is so high at the moment.
- The War in Ukraine: Global food prices have soared as Ukraine is a major producer of key ingredients like grains and sunflower oil.
- Sanctions against Russia: Western sanctions against Russia, such as Britain’s oil ban, and the resulting retaliatory actions by President Vladimir Putin have threatened energy and fuel supplies. This has pushed up prices as Russia is a major exporter of oil and gas to Europe.
- Global post-Covid recovery: As countries emerged from the Covid-19 lockdowns, demand for fuel and energy has skyrocketed as they restart their economies.
What are CPI and RPI?
The CPI has been the official measure since 1996 and is calculated using a typical basket of goods and services commonly consumed in the UK.
This basket is weighted such that goods essential to most households, such as milk, have a greater impact on the index than luxury goods, such as smartwatches.
It is used by the government to determine the level of government support, including benefits.
In June 2022, the CPi rate was 9.4%.
That means something that cost an average of £1 last June is now an average of 9.4p more expensive.
The RPI was the official measure of inflation throughout the 20th century and is now calculated so the UK can see how current interest rates compare against history.
But it’s still used to determine how the prices of things like train tickets and phone plans should change.
It tends to be higher than the CPI because it includes mortgage interest payments, meaning it’s affected by house prices.
The latest RPI for June 2022 is 11.8%.
What does current inflation mean for the cost of living?
Whatever measure is used, both the CPI and RPI show that the cost of living in the UK has become much more expensive over the past 12 months.
According to the ONS, price increases are most pronounced in transportation, where the CPI shows that the average cost of motor fuel is up 42.3% year-on-year.
This means that the price of transporting goods and people across the country has become much more expensive.
This level of inflation is viewed as a good thing by many economists, who believe it encourages people to spend what they have today, rather than seeing it go up in price tomorrow.
The argument is that this behavior contributes to a healthy economy, where people spend sustainably, which creates more demand for goods and services and – in turn – sustains supply chains and employment.
However, with inflation currently very high – and expected to rise this year before falling again in 2023 – it means people are less likely to spend their hard-earned cash on anything other than basic necessities.