The inflation rate in the UK continues to be very high. According to the latest consumer price index, prices have risen by 4.5% in the last year. This is more than the 2% target set by the Bank of England. However, the costs of a second-hand car, an airline ticket, and energy bills are falling. Despite these changes, the inflation rate in the UK remains high, causing problems for many lower-income households.
Consumer price index
There is a wide range of consumer price inflation measures published by the Office for National Statistics. These measures include the Consumer Prices Index, which is used to calculate the UK's inflation rate.
In October, consumer prices rose by a 41-year high of 11.1% annually. A number of factors drove prices higher. Among them were higher food costs and rising energy bills.
The Office for National Statistics said the largest upward contributions came from electricity and gas. Other notable contributions included 0.06 percentage points from recreation and culture, 0.15 from food and non-alcoholic beverages and 0.03 from transport.
Consumer prices fell in November, although they still remain above the government's inflation target of 10.7%. The Bank of England raised interest rates in December to try to control inflation.
The UK is in the midst of an energy crisis. Gas and electricity prices have surged to unprecedented levels. This is not just a European problem. Britain has been particularly vulnerable.
The soaring costs of gas and electricity have sent inflation skyrocketing. It has reached the highest level in over 40 years. Meanwhile, food and transport costs have also risen.
Household bills are set to increase by more than 50 percent this year. And if the latest price cap is implemented, it could see people paying up to 4,240 pounds a year for heating and electricity.
Energy companies have been forced to increase their prices by almost a third in the last year. In October, the Office for National Statistics (ONS) reported an inflation rate of 11.1%, a record for the United Kingdom.
Bank of England's inflation target of 2%
The Bank of England has an inflation target of 2%. Its rate is based on the Consumer Price Index.
Keeping prices low is a big priority for the Bank of England, which has been raising rates nine times in the last year. They plan to raise the policy rate by 0.75% in March. In the past, they've gone as low as 0.1 percent and as high as 3.5 percent.
This isn't the first time the Bank has set an inflation target. In 1992, then-prime minister Gordon Brown introduced the first target of a certain amount of inflation.
During the 1990s, the Bank of England followed a more rigorous inflation targeting policy. Members of the Monetary Policy Committee pushed for a so-called "zone" target, allowing inflation to go above the 2% mark a few times, then cutting the interest rate when it fell below the level.
Impact on lowest-income households
High inflation rates in the UK have had an adverse effect on low income households. The cost of living crisis is affecting the poorest households in the UK more than wealthy ones.
The poorest in society are being sucked into debt as they try to meet rising bills. This could lead to increased material deprivation. In order to protect the least well off, the government needs to do more. It should also increase support for microgeneration.
A new report from Barnardo's has found that rising prices are taking a significant toll on the lives of low income families. More than half of households with an income of less than PS40,000 cut back on clothing for adults.
Increasing food and fuel prices are causing inflation for lower income households to surge. As well as increasing the price of groceries, food prices for the poorest have risen by 10%, while fuel prices are up by more than a quarter.