Inflation is when the price of household and everyday items are measured, affecting products like food and transportation. The Bank of England targets an inflation rate of 2% for stability, with inflation rates reflecting the average price increase annually.
The Bank of England collects around 180,000 prices monthly to calculate the Consumer Prices Index (CPI), a key measure of inflation in the UK economy. CPI helps in understanding the price changes of a 'shopping basket' of around 700 items.
High or erratic inflation rates make it challenging for businesses to set prices and individuals to plan spending. Conversely, low or negative inflation may lead to reduced consumer spending, potentially causing economic disruptions by affecting business sustainability.
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