Inflation surges to 2.1 percent – what this really means for YOUR money
Inflation: Expert discusses Consumer Price Index rise of 2.1%
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Inflation rates have surged to a high not seen in nearly two years, breaching the Bank of England’s 2 percent target. The latest news reflects a change in consumer spending, with the Office for National Statistics saying the figures were distorted by “base effects” because of the 2020 lockdowns. But this rise has a myriad of potential impacts both locally and internationally, with customers and businesses alike.
What does inflation mean for your money?
Inflation refers to a general rise in national price levels when everything gets more expensive.
Officials calculate the rate of infection using indexes such as the Consumer Prices Index (CPI).
The CPI tracks changes in a supermarket basket, but as it reduces purchasing power, consumers and businesses will feel the effects of inflation across the economy.
Inflation indicates, via the CPI, that supermarket prices have increased on average.
A rate of 2.1 percent means items previously priced at £1.00 will have risen to a fraction over £1.02.
While this seems insignificant alone, people may find their daily or weekly shops cost several pounds more than they might have last year.
State Pension increases
Pensions aren’t terminally linked to inflation everywhere, but a key determiner in the UK is.
UK state pension is “triple-locked” by the treasury, based on inflation, annual wage growth, or 2.5 percent.
The triple lock means it increases annually based on whichever value is highest, meaning it could rise if inflation continues to surge and passes 2.5 percent.
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According to the ONS, fuel prices have propped up the latest inflation rise.
Grant Fitzner, the office’s chief economist, said fuel jumped as crude prices increased.
As such, people may continue to find they spend more than usual at the pump.
Inflation hits consumers first, so an increase in prices may dissuade them from spending.
Businesses then suffer a fall in sales, losing income alongside their customers.
Local inflation will also impact companies trading overseas, as UK prices rise compared to others, making services less competitive.
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