The cost of living in the UK has increased at its fastest rate for four decades, as soaring energy bills put millions of households under pressure. Consumer Prices Index inflation rose to 10.1% in summer, the Office for National Statistics (ONS) said. The ONS estimated it as the biggest cost of living jump since February 1982, when CPI reached 10.4%.
A large portion of the rise – which spiked earlier in the year due to the price cap on energy bills – was down to food prices and staples including toilet rolls and toothbrushes. The figures will add to pressure faced by households to cut back on bills and everyday spending.
But what does inflation actually mean, and how does it affect you on a day-to-day basis?
What does inflation mean?
In terms of economics, inflation refers to a general increase in prices and a fall in the purchasing value of money. When the general price of items rises during inflation but the value of money stays the same, consumers can buy fewer items and goods for the same monetary sum.
On a small scale, inflation can be good for the economy, as it encourages shoppers to buy goods sooner, boosting businesses in the country. This has also been shown to improve productivity not just for businesses, but also for workers.
What does high inflation mean?
High inflation, therefore, is when prices for goods and items is unusually high. Shoppers can therefore get less for their money when purchasing.
Although a little inflation can be positive, it can also damage individual finances, depending on the circumstances.
High inflation is also generally bad for savers, as low interest rates combined with rising inflation means that there is less chance of seeing a return on money in savings accounts and investments.
Do Bank of England interest rates affect Scotland?
Interest rates set by the Bank of England affect lending and mortgage rates across the UK, including Scotland.
In addition, many of the effects of high inflation will affect households in Scotland, as well as other countries in the UK.
Additional reporting by PA.