An increase from 3.1% up to 4.2% in October has made headlines around the UK, according to the Office for National Statistics. This is more than double the 2% target the Bank of England set for Downing Street.
What does this actually mean?
Inflation is the annual change in prices for a set of goods and services, a way of measuring how quickly prices are rising.
When the inflation rate goes up, it means the average cost of living – including products and services – has increased.
The current inflation rate means a £1 coffee becomes £1.42.
Why is this happening now?
The pandemic has clearly played a part in increasing prices considering it triggered the UK’s worst recession for three centuries.
There is also increased global demand on oil and gas supplies at the moment, and the energy regulator Ofgem has lifted its cap on household bills.
The cost of raw materials, wages and transportation of goods to customers has increased sharply as well, due to a shortage of supplies.
Higher prices in restaurants and hotels – following a partial cut to VAT for hospitality and an increase of prices for secondhand cars – have contributed to inflation rates too.
Businesses are now thought to be passing on all of these additional costs to their customers.
Should I be worried?
Money may be a little tighter for a short period, and the Bank of England has warned that it will get worse before it gets better.
Inflation rates are expected to peak at almost 5% in 2022.
Senior economist at the Resolution Foundation Jack Leslie predicted: “We could be set for a sustained period of shrinking pay packets.”
He claimed this was because the rate of inflation has increased at its fastest rate over the past year since 1989.
The Bank of England governor Andrew Bailey has even apologised for the rising prices.
Sir John Gieve, former member of the Bank’s Monetary Policy Committee – which sets interest rates – said he expects this trend to remain through to April and then stay above target for the rest of the year.
But, as we move away from the inevitable recession triggered by the pandemic, inflation is expected to fade back towards the 2% level set out by the Bank of England.
In the meantime, the Bank of England is likely to raise interest rates, possibly from next month.
What has the government said?
Chancellor Rishi Sunak explained that many countries were seeing higher inflation rates post-pandemic and that the government was taking action.
He said: “We’re helping people get into work, progress and keep more of what they earn, through our plan for jobs and by effectively cutting taxes for workers receiving universal credit.”
Shadow chancellor Rachel Reeves has warned that UK households could now be £1,000 worse off each year as a result, and that No.10 has trapped the UK in a “high tax, low growth cycle”.