The latest Consumer Price Index (CPI) as a measure of inflation has hit 9.1%, causing further misery for struggling households as the UK’s cost of living crisis deepens
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Inflation has risen to 9.1% as the cost of living continues to rise at the fastest rate in 40 years.
The consumer price index (CPI) is used to explain how much the prices of everyday items have increased.
When inflation goes up, it basically means your money doesn’t go as far as it used to.
For example, if something cost £1 a year ago and the inflation rate is 9%, it would cost £1.09 today.
The latest UK inflation figure for the 12 months to May is almost five times higher than the Bank of England’s (BoE) target of 2%.
The CPI was already at a 40-year high when it hit 9% in the 12 months to April.
But what exactly is causing the record price increases – and what comes next?
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Why is inflation rising?
Inflation is rising around the world – not just in the UK – and there are several reasons for this.
Household spending started to rise in early 2021 as the UK began easing coronavirus restrictions.
When people spend more, it drives up demand and prices.
“Economies around the world, including the UK, opened up after Covid restrictions were eased. And then, of course, people wanted to start buying things again,” the BoE explains.
“But companies selling some of these things couldn’t get enough of them for their customers. This led to rising prices – especially for goods from abroad.”
The Russian invasion of Ukraine earlier this year has also caused prices to rise, including a sharp increase in energy costs.
Agricultural commodities such as grain, which are needed to produce food, have also risen in the wake of the crisis.
The BoE also notes that “there are more vacancies than there are people filling them”.
This means employers have to offer higher wages to attract applicants, which drives up their costs and is reflected in their prices.
Which items increase in price?
The ONS said food and drink prices were the biggest contributor to rising inflation over the 12 months to May.
Gas and electricity costs have also risen sharply after Ofgem’s price cap was raised by 54% in April.
Energy analysts Cornwall Insights warned this week that the October price cap could hit nearly £3,000 – which would mean a further £1,000 increase for families on top of the current April price cap of £1,971.
Meanwhile, fuel prices have reached record highs in misery for drivers who rely on their cars for work.
The cost of unleaded petrol is now 188.74p and diesel is 196.36p, according to RAC figures – with some motorway stations already charging £2 a liter.
ONS chief economist Grant Fitzner said: “Although the annual inflation rate is still at historically high levels, it was little changed in May.
“Continued soaring food prices and record-high gas prices were offset by a decline in the cost of clothing by less than this time last year and a decline in often-volatile computer game prices.”
Will inflation continue to rise?
BoE economists expect UK inflation to hit 11% by the end of this year.
It had previously estimated that the CPI rate would reach 10%.
The BoE does not expect inflation to fall before next year and projects it to be close to its 2% target in about two years.
The Confederation of British Industry (CBI) warned last week that the government must act now to prevent Britain from slipping into recession.
A recession is defined as two consecutive quarters—that is, six months in a row—of economic slowdown.
The CBI cut its growth outlook for this year to 3.7% from 5.1% previously and just 1% in 2023 from 3%.
The BoE hiked interest rates to 1.25% last week as part of plans to cool inflation.
With interest rates and borrowing costs rising, households will spend less, according to the BoE, and this should mean inflation will come down.
https://www.mirror.co.uk/money/what-91-inflation-means-your-27296990 What does 9.1% inflation mean for your money - and will it rise further this year?