The jump, driven largely by rising fuel and energy costs, puts further pressure on households across the UK.
Why are prices rising?
There are a number of reasons for this increase:
- Demand for oil and gas is pushing up energy prices worldwide. This means higher bills for householders, and for businesses
- Shortages of many goods are causing supply problems and pushing up prices
- Government support to businesses during the pandemic, like the Furlough scheme, has ended
- Businesses are struggling to recruit lorry drivers and hospitality staff. This is partly due to the pandemic but hasn’t been helped by Brexit.
What is inflation?
Inflation is the rate at which prices are rising so, if the cost of a £1 jar of jam rises by 5p, then jam inflation is 5%.
It applies to services too, like having your nails done or getting your car cleaned.
You may not notice low levels of inflation but in the long term, these price rises can have a big impact on how much you can buy with your money - often referred to as the cost of living.
How does inflation affect us?
We're all affected by rising prices but if you're on a low income or don't have savings to fall back on, you're likely to feel the impact more.
If your pay is rising by less than inflation, you will see a fall in the "real" value of your wages because what you're earning will buy less. Some people will be lucky enough to see their income rising at the same rate as prices though, for example, wages for lorry drivers are having to rise to attract people into these jobs.
Ultimately, we are all affected in some way or another.
How is inflation measured?
A body called the Office for National Statistics (ONS) notes the prices of hundreds of everyday items. These items are called the "basket of goods" and they're constantly updated. For instance, this year (reflecting the pandemic), the ONS added hand sanitiser and men's loungewear bottoms, but took out sandwiches bought in staff restaurants.
The ONS releases its measure of inflation each month showing how much these prices have risen since the same date last year and this is known as the Consumer Prices Index or CPI.
What is the inflation rate used for?
Government bodies use the inflation rate to decide a whole range of things, from how much pensions should rise to the price of train fares.
It's keenly watched by economists too, since inflation is a sign of what's going on in the economy.
A bit of inflation is considered to be a good thing. If prices were falling then people might delay buying non-essential items in the hope of getting them more cheaply but if prices are rising too sharply, it could mean that the economy is running into difficulties.
The Bank of England aims to keep inflation at around 2%.
What can the Bank of England do to tackle inflation?
If inflation rises quickly, the Bank of England can tackle it by raising interest rates.
That means anyone who has borrowed money could see their monthly payments go up, especially on mortgages that may be tied to the Bank of England's rates. The Bank of England works on the principle that when borrowing is more expensive people will have less money to spend, they will buy fewer things and prices will go down.
If inflation is caused by external forces however - such as the global squeeze on energy prices - then raising interest rates may not always solve the problem.