UK Inflation Rates: What are inflation rates and why are they rising?
The month of August saw the largest increase in inflation rates since records began, but what does the UK inflation rate mean for consumers?
The UK saw inflation rates rise from 2.0% in July, to 3.2% in August, with the cost of inflation going up 1.2% in a month.
This is the highest increase since records began in January, 1997, with latest statistics showing inflation rates rising well above the Bank of England's 2% target.
According to the Office of National Statistics (ONS), the high inflation rates for August 2021, can be traced back to the Eat Out to Help Out scheme, which saw consumers enjoy up to 50% discount across the hospitality sector last August.
As the Eat Out to Help Out scheme was short-term, they suggest the rise in the August 2021 inflation rate is "likely to be temporary."
Homeowners are also being directly impacted, with costs rising to 3.0% in August, up from 2.0% in July, the highest rise recorded since December, 2008.
What is inflation?
Inflation measures the rate that costs are rising for a variety of products and services, from food in the supermarket to how much your haircut will be.
Rates can vary month to month, but some inflation rates can end up leaving a dent in your wallet, with everyday essentials costing you more than they used to.
Things like the milk you add to your cup of tea, a sandwich from your local deli, to getting your nails done, all of these everyday items can be hit by inflation.
For example, if the cost of your favourite coffee at your local café was £1, and then prices went up by 10p, the rate of inflation on your coffee would be 10%.
How are UK inflation rates measured?
Inflation rates are measured by the Office for National Statistics using a 12-month or annual rate which compares prices by looking at how much the same items cost the previous month and the same month a year ago.
This means that August's inflation rate has been measured by comparing the costs for the same items in July 2021 and August 2020.
Why are UK inflation rates on the rise?
There has been much instability in the economy since the coronavirus pandemic and this has influenced the inflation rates we are now seeing.
The Office for National Statistics outline that the Eat out to Help Out scheme which offered up to 50% off the costs of eating out in restaurants last August, meant prices for hospitality services were substantially cheaper than they are now.
This means that it is now more expensive to dine out compared to this time last year, which is reflected in the inflation rate rise.
Other factors, like goods shortages will also impact the rise in inflation, as goods are harder to get which subsequently causes prices to increase.
Why does the UK inflation rate matter to me?
With rising inflation rates, this could mean your money won't go as far as it used to, but it's important to remember that not everything we buy will rise at the same rate and that the Office for National Statistics has advised that this increased rate is, "likely to be temporary."