A grim statistic reveals the rate of inflation has soared to 9.1%, its highest level in 40 years. The figure is based on the consumer prices index (CPI) measure of inflation based on how much the price of everyday goods has gone up.
It reveals how far your money goes compared to previous years. For instance, if something cost £10 a year ago, with an inflation rate of now 9%, it would cost £10.90 today, reports the Mirror.
The 9.1% inflation figure for the 12 months to May is almost five times higher than the Bank of England (BoE) target of 2%. The CPI had already hit a 40-year high when it rose to 9% in the 12 months to April.
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But what exactly is causing the record price rises - and what's coming next? Here we answer questions concerning our readers.
What happens when inflation rises?
The rate of inflation is increasing not just in the UK but across the world and there are a number of reasons why this is happening. Here in the UK, household spending started to rise in early 2021 when Covid restrictions began being eased.
When people are spending more, it drives up demand and pushes up prices. "Economies around the world, including in the UK, opened up after Covid restrictions eased. And then people naturally wanted to start buying things again," explains the BoE.
"But businesses selling some of those things couldn’t get enough of them to their customers. This caused prices to rise - especially for goods coming from abroad."
The Russian invasion of Ukraine earlier this year has also caused prices to rise, including a sharp increase in the cost of energy. Agricultural commodities, such as grain, which are needed to produce food, have risen too off the back of the crisis.
The BoE also notes that “there are more job vacancies than there are people to fill them”. This means employers are having to offer higher wages to attract job applicants, which is pushing up their costs and is reflected in their prices.
Wha t items are rising in price?
The ONS said food and drink prices were the biggest contributor of rising inflation. The most dramatic increases seen were in the cost of bread, cereals and meat.
Market reach firm Kantar has forecast that the average annual grocery bill in the UK is set to rise by £380 this year. The cost of gas and electricity has also surged, after the Ofgem price cap was raised by 54% in April.
Energy analysts at Cornwall Insights this week warned the October price cap could hit almost £3,000 in what would mark another £1,000 rise for families on top of the current £1,971 April price cap.
Meanwhile, the price of fuel reached record highs in misery for drivers who rely on their car for work. The cost of unleaded petrol is now 188.74p and diesel is 196.36p, according to RAC figures - with some motorway stations already charging £2 per litre.
The price of raw materials, household goods, furniture and restaurants and hotels are also going up. ONS chief economist Grant Fitzner said: “Though still at historically high levels, the annual inflation rate was little changed in May.
"Continued steep food price rises and record high petrol prices were offset by clothing costs rising by less than this time last year and a drop in often fluctuating computer games prices."
Here are the biggest monthly changes in the CPI annual inflation rate:
- Food and non-alcoholic drinks: 0.22% change
- Furniture and household goods: 0.04% change
- Transport: 0.03% change
- Alcohol and tobacco: 0.03% change
- Housing and household services: 0.01% change
- Health: - 0.01% change
- Recreation and culture: - 0.13% change
- Clothing and footwear: - 0.11% change
What does high inflation mean for me?
The BoE economists are expecting UK inflation to hit 11% by the end of this year. It had previously estimated that the rate of CPI would hit 10%.
The BoE doesn’t expect inflation to start to fall until next year, and is predicted that it will be close to its 2% target in around two years. The Confederation of British Industry (CBI) last week warned the Government must act now to avoid the UK slipping into recession.
A recession is defined as two consecutive quarters - so six months in a row - of the economy declining. The CBI downgraded its growth outlook to 3.7% for this year, from 5.1% previously, and just 1% in 2023, from 3%.
The BoE raised interest rates last week to 1.25% as part of its plans to cool inflation. By raising interest rates and the cost of borrowing, the BoE says households will spend less and this should mean inflation will drop.
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