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What is the inflation rate in the UK and why is it so high?

The rate of price increases fell to 6.8% in the year to July, from 7.9% in June.

Inflation for food items like milk, bread and cereals has also fallen, although it remains high – at 14.9%.

What does inflation mean?

Inflation is the increase in the price of something over time.

If a bottle of milk costs £1 but costs £1.05 a year later, annual milk inflation is 5%.

How is the inflation rate measured in the UK?

The Office for National Statistics (ONS) tracks the prices of hundreds of everyday items in an imaginary “basket of goods”.

The cart is constantly updated to reflect shopping trends, with the most recent changes adding frozen berries and removing alcopops.

Each month’s inflation figure shows how much these prices have risen since this time last year.

You can calculate inflation in different ways, but the main “overall” measure is the Consumer Price Index (CPI).

What is “core inflation”?

“Core inflation” excludes the price of energy, food, alcohol and tobacco,

This measure was 6.9% in July, unchanged from June which was the highest level since 1992.

The Bank of England takes this figure as well as the CPI into account when deciding whether to change interest rates.

Why are prices increasing so quickly?

Soaring food and energy bills have helped drive up inflation.

This effect was compounded in the UK in February by a vegetable shortage, which pushed food inflation to its highest level in 45 years.

Alcohol prices in restaurants and pubs have also increased.

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How do rising interest rates help fight inflation?

The Bank of England has set a goal of keeping inflation at 2%, but the current rate remains much higher.

This makes borrowing more expensive and may mean that some people with a mortgage see their monthly payments increase. Some savings rates are also increasing.

When people have less money to spend, they buy fewer things, which reduces demand for goods and slows the rise in prices.

Businesses also borrow less, making them less likely to create jobs and may downsize.

But when inflation is caused by factors such as global energy prices, action by the Bank of England may not be enough to slow it.

Do salaries keep up with inflation?

That matches the rate of inflation, meaning real wages remained stable for the first time in two years, rather than falling behind.

However, unions point out that many workers received more modest pay increases and many strikes took place over wages.

The government has argued that large wage increases could drive up inflation, as businesses could raise prices as a result.

When will inflation fall?

Lower inflation does not mean lower prices. This simply means that they rise more slowly.

The Bank of England predicts inflation will fall to 5% by the end of 2023, instead of the 4% it predicted.

But he admitted that price inflation has been “stronger than expected”.

What is happening to inflation and interest rates in Europe and the United States?

Other countries have also faced a cost of living crisis.

Most of the reasons are the same: rising energy costs, shortages of goods and materials, and the fallout from Covid.


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