New figures have revealed that UK inflation remained stuck at 8.7 per cent in May, higher than expectations of a drop to 8.4 per cent, sparking fears that rapid price rises are becoming “entrenched”.
The Bank of England is expected to raise interest rates by 0.25 per cent to 4.75 per cent on Thursday in a bid to reduce inflation.
But, in light of the shock inflation figures, some economists have now suggested the Bank could decide to implement a more dramatic increase of 0.5 per cent.
Despite a number of supermarkets boasting price cuts, food prices are up significantly from last year.
Top food retailers cut prices of certain items like bread and milk following a sharp rise in grocery bills in April. But many of these reduced prices were still higher than those 2022, while other products kept rising in cost.
Even more concerning may be the rise in “core inflation”, which excludes food and energy prices in order to create a less volatile picture of domestic price rises. It is closely monitored by the Bank of England, and rose to 7.1 per cent, after April’s figure was already a 30-year high.
But did you know that there is a difference between core inflation and headline inflation?
Here are the key details to know.
What is inflation?
Inflation is the measure by which the rate of rising prices is gauged in an economy.
Inflation rates can increase due to several factors, including higher production costs and a surge in demand for products and services.
What is the difference between core inflation and headline inflation?
Core inflation and headline inflation are two different concepts.
Core inflation refers to all commodities, services, and goods in the economy excluding food and fuel.
Headline inflation, on the other hand, includes these, too, and refers to all the changes in the values of things.
As the prices of food and fuel are volatile and fluctuate a lot, core inflation is a more stable rate than headline inflation.
How is inflation calculated?
Inflation is calculated by measuring the changes in the cost of living, by looking at the price of a “basket of goods” and services Brits use every day.
This basket is determined based on the findings of an annual Family Expenditure Survey conducted by the Office for National Statistics (ONS). It asks volunteers to discover what people’s shopping habits are.
Then, based on these habits, the Government checks the prices of the 1,000 most common goods in the UK every month, noting the changes in the values of such items and services.
The percentage increases are then multiplied by the weighting the product in question has been given, which in turn reveals how much the price increase is affecting consumers’ budgets.
