Inflation: What it is and how it can affect you

  • 18 January 2011
  • From the section Politics
Till receipt and coins

Inflation probably sounds like something you'd go to the doctors with.

But it's actually the way we measure a rise in the cost of living, which includes everything from petrol to clothes to food.

In normal economies prices are always rising by a little bit.

For example when your Nan said a bar of chocolate cost 8p when she was younger, but now its £1? That's because of inflation.

'Oil cost more'

However the latest inflation figures are worrying because they show a big rise in just a month.

The main reason inflation went up more than expected in December is fuel. Oil cost more.

That meant that heating your home cost more too. The average Christmas food shop also cost more.

Most of this is out of our control, because things we're buying from abroad cost more now.

Demand for oil is high across the world and there's less of it to go around. And bad weather - globally - has hit some foods.

So, most of your daily essentials are costing more and there's no pay rise on the horizon for most.

That all means that the pound in your pocket is worth less.

'Tougher times'

The big question now is what do we about it - inflation has been above the government's target for over a year and if that continues it could be dangerous.

So, here comes the bad bit.

The main way to deal with it is to try to stop you spending.

Interest rates is the way to do that. Putting rates up can stop inflation going up - because people spend less.

But it also means that bank loans or mortgages will cost you more every month. Either way, this all probably means tougher times are ahead for some."