UK inflation has risen at its fastest pace in nearly 30 years.
Latest figures from the Office of National Statistics (ONS) show that inflation rose by 5.4% in December 2021.
The increase has been attributed to rise in food, non-alcoholic drinks, fashion, fuel and energy costs, which is putting pressure on household finances.
It is the first ONS assessment of the cost of living since chancellor Rishi Sunak’s Autumn Budget, where he predicted inflation will average more than 4% in 2022.
Mr Sunak told MPs in the House of Commons that he had written to the governor of the Bank of England to reaffirm a remit “to achieve low and stable inflation”.
“People should be reassured they have a strong track record in doing so,” said Mr Sunak. “I understand people are concerned about global inflation – but they have a government here at home ready and willing to act.”
Here’s all you need to know about inflation.
What is inflation?
Inflation is a word used by economists to describe the sustained rise in prices of goods and services within a country over a set period of time.
Inflation rates vary all the time in response to external factors such as the price of oil, which has risen of late as lockdown restrictions ease under the government’s roadmap.
The ONS releases regular updates on the UK’s inflation rate, which has been brought into focus since the Covid pandemic hit, for people to assess living costs and make changes.
As inflation rates increase so does the cost of living, meaning the value of currency decreases.
Why is inflation going up?
Latest ONS figures show the UK inflation rate increased by 5.4% in the 12 months to December 2021 - up from 5.1% in November 2021.
There has been an increase in prices to food, non-alcoholic drinks, household costs, as well as second hand cars, among other everyday items over the past few months, say the ONS.
Why is UK inflation rates on the up?
Chancellor Rishi Sunak said: "We know how challenging rising inflation can be for families and households which is why we're spending £4.2bn to support living standards and provide targeted measures for the most vulnerable over the winter months.
"With a resurgence of the virus, the most important thing we can do to safeguard the economic recovery is for everyone to get boosted now."
Labour's shadow chief secretary to the Treasury, Pat McFadden, said: "These figures are a stark illustration of the cost-of-living crisis facing families this Christmas.
"Instead of taking action, the government are looking the other way, blaming 'global problems' while they trap us in a high-tax, low-growth cycle."
What happens when inflation rises?
The inflation rate is forever changing.
When the inflation rate goes up, goods and services cost more and the money in consumers’ pockets doesn’t stretch as far, resulting in an increase in the cost of living generally.
This is seen as a good thing, to a degree, by some economists who think a moderate rate of inflation encourages people to spend what they have today rather than see its value decrease.
The theory is based on people’s temptation to buy today outweighing the thought of seeing your money diminish in value over time as inflation rises and the cost of a cup of coffee increases.
It all contributes towards a healthy economy where people are spending money to create more demand for goods and services, and in-turn maintaining supply chains and employment.
The Bank of England expects UK inflation to be in excess of 5%, above its 2% target, before the rate gradually levels out over 2022 and 2023.
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