Inflation holds steady at 2.2%

The latest inflation figures from the Office for National Statistics (ONS) revealed headline inflation holding steady at 2.2% in the year to August.

This means that headline inflation is hovering just 0.2% above the Bank of England’s 2% target. With that, inflation is on the brink of being exactly where it should be for a healthy economy, according to the Bank of England.  

Grant Fitzner, chief economist at the ONS, said inflation "held steady" in August as price falls in some areas compensated for rises in others.

"The main movements came from air fares, in particular to European destinations, which showed a large monthly rise, following a fall this time last year," he added.

"This was offset by lower prices at the pump as well as falling costs at restaurants and hotels. Also, the prices of shop bought alcohol fell slightly this month but rose at the same time last year."

Despite inflation holding at 2.2%, separate figures showed that private rents across the UK increased by 8.4% in the year to August, demonstrating that it will still take some time for cost of living related expenses to settle.

What is inflation and how is it measured?

Inflation is a measure of how the prices of goods and services have increased over time. Goods are tangible items sold to customers, such as food, while services are tasks performed for the benefit of recipients, such as a haircut. Generally, this increase is measured by considering the cost of things today compared to how much they cost a year ago. The average increase between these prices is demonstrated in the inflation rate.

Rising interest rates directly affect the cost of living. For example, if the price of a bottle of milk is £1, and inflation is increasing by 5%, then your bottle of milk will cost you 5p more. Or, in other words, the spending power of your money has decreased by 5%.

Ideally, the Government wants to keep inflation low and stable. The general mandated target for the Bank of England is 2%. Anything significantly above or below this target is thought to cause issues for the economy.

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The details in this article are for information only and do not constitute individual advice.