The number on the note stays the same
Imagine a basket of shopping costs £20. A year later, the same basket costs £22. Your £20 has not changed, but it no longer buys the whole basket. In this made-up example, the price of the basket has risen by 10%.
This year: £20The whole basket fits.
Next year: £20The same basket costs £22, so something stays on the shelf.
From one basket to the bigger picture
Inflation describes how prices change across a wide range of goods and services. A consumer price index combines many prices rather than relying on one item. It gives a broad picture, but it will not perfectly match every household’s shopping.
Someone who spends a large share of their money on something whose price rises quickly can feel a bigger change in living costs than someone who rarely buys it.
Why prices rise
Economists usually point to a few drivers that often work together: people wanting to buy more than is available, the costs of making things going up (energy, materials, wages), and supply being squeezed so there is less to go round.
Wait, but if inflation is “falling”, why are prices still going up?
Because the inflation rate measures how fast prices are rising, not whether they are rising. If prices rose 10% last year and 2% this year, inflation has fallen, but things still cost more than before.
Slower rises are still rises
“Inflation is down” does not mean the basket costs less than it used to. It means prices are climbing more slowly. For prices to actually fall, you would need deflation, which brings its own problems.
The baskets in the cover image are illustrative. They do not show measured prices from a particular shop or date.
