What is inflation?
Inflation is a measure of the rate at which a range of prices rise over a given period of time.
How is inflation measured?
Here in the UK, we measure inflation by the results produced from the Office for National Statistics (ONS). Here they measure the change in the price of 700 regularly purchased products (sometimes known as the basket of goods and services) compared with the same time the previous year.
The basket of goods and services is updated regularly to reflect the status more accurately.
The price of the basket basket of goods and services provides the overall price level, this is known as the Consumer Prices Index or CPI.
To calculate the rate of inflation, they compare the cost of the basket – the level of CPI – with what it was a year ago. The change in the price level over the year is the rate of inflation.
Source: The Bank of England