The Bank of England (BoE) defines inflation simply as a term used by economists to “describe the rise in prices over time”.
Rising prices for goods and services on the main streets of the UK indicate that the value of the British pound is declining, which in turn means a decrease in the purchasing power of consumers and therefore their quality of life, as they are discouraged from spending more than they want. can afford.
This, in turn, undermines national economic growth.
“A healthy economy should have a low and stable inflation rate,” the central bank explains. “The government is setting a target for how much overall prices should rise each year in the UK. This target is 2 percent. The task of the Bank of England is to keep inflation at this level.
“A little inflation is good. But high and unstable inflation rates can be harmful. If prices are unpredictable, it is difficult for people to plan how much they can spend, save, or invest.
“In extreme cases, high and unsustainable inflation can lead to the collapse of the economy. Zimbabwe is a good example. This happened in 2007-2009 when the price level rose by about 80 billion percent in one month. As a result, people simply refused to use Zimbabwean banknotes and the economy came to a standstill.”
The Bank of England establishes monetary policy to control and prevent the occurrence of such situations, primarily through the management of interest rates.
“Higher interest rates make it more expensive for people to borrow money and encourage them to save. This means they will tend to spend less overall,” the bank continues.
“If people generally spend less on goods and services, prices will rise more slowly. This lowers the rate of inflation.”
In the UK, inflation is measured monthly by the Office for National Statistics (ONS), which checks the prices of 700 typical goods and services that British consumers regularly spend money on, from bread and milk to cars and overseas holidays.
The total value of a “basket” of such goods is calculated to produce a consumer price index (CPI) that is compared to its equivalent a year earlier to show how much inflation has risen over the past 12 months.
In its latest statement on December 14, the ONS reported that the UK inflation rate is 10.7%.
Food prices posted their biggest jump since 1977, while rising gas and electricity bills continued to drive overall growth, the Office for National Statistics (ONS) said in its latest data release.
The ONS reported that gas prices have risen by almost 130% over the past year, and electricity by about 66%.
Families have also been hit by rising prices for a range of food items, which has also pushed the cost of living up to incredible levels.
The jump in inflation – the biggest jump from March to April – came despite government support for energy, which has sought to cap Ofgem energy prices at around £2,500 a year.
Grant Fitzner, chief economist at ONS, said: “Rising gas and electricity prices have sent headline inflation to its highest level in more than 40 years, despite the energy price guarantee.”
He added: “Increase in the prices of a number of food products has also led to higher inflation.
“This was partly offset by motor fuels, where average gasoline prices fell in a month and diesel prices rose, making the price difference between the two fuels the highest on record.
“There was further evidence that the costs faced by businesses are rising at a slower pace due to the price of crude oil and petroleum products.”
Martin Beck, chief economic adviser to the EY Item Club, said he expects the worst for inflation to be over.
He said: “EY Item Club believes that inflation has reached its peak. The prospect of changes to the Energy Price Guarantee (EPG) – to be announced tomorrow in the fall…
Credit: www.independent.co.uk /