Finance in a minute
Inflation fell.
Why are prices still high?
Follow a simple shopping basket from £100 to £112.20, then connect the idea to the purchasing power of savings.
The idea behind the headline.
Inflation measures the rate of price increases. Lower positive inflation means prices are still rising, only more slowly. A fall in the price level is deflation.
In our illustrative example, 10% inflation turns a £100 basket into £110. A further 2% increase makes it £112.20.
If savings grow 4% and prices rise 5%, the exact real change is 1.04 / 1.05 − 1, about −0.95%.
Try the purchasing-power tool ↗Read the full lesson and worked exercises
Synthetic narration. Illustrative figures, not current inflation data. Concept source: Bank of England.