What is Happening to Inflation?

Readers Question: How do we know whether is inflation is increasing or decreasing?

  • Inflation measures the annual change in prices.
  • An inflation rate of 4.7% means that on average prices increased 4.7% in the last 12 months.
  • You can find the latest inflation rate at the Bank of England Home page
  • Next month, we expect the inflation rate to fall ( let us say it falls to 4.3%)
  • This is a fall in the inflation rate. It means that prices are increasing at a slower rate (note: it doesn’t mean prices are falling. It just means they are increasing at a slower rate)

Graph of UK Inflation
This is a graph of UK inflation. To complicate things there are two ways of measuring inflation (but, they are fairly similar. You can see that CPI inflation rate increased from October 2007 to July 2008. This was partly due to increased oil prices. Now the inflation rate is falling because we are entering recession. It will probably keep falling to about 1-2% by the middle of next year

See also: Fall in Inflation and rise in prices

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