What is the UK inflation rate? June 2022 CPI and RPI explained - what current rate means for UK cost of living

The latest data from the Office for National Statistics (ONS) showed energy bills, petrol pump prices and food costs continued to rocket in June

The UK inflation rate has soared once again, the latest CPI figures from the Office for National Statistics (ONS) show.

In June 2022, inflation grew to 9.4% - a rise of 0.3% percentage points compared to the previous month’s figure.

It means the rate is the highest it’s been since the Consumer Prices Index was introduced and, after historical calculations, the highest since February 1982.

But what exactly do these figures mean - and what does it all mean for the cost of living crisis?

Price rises have affected a number of key items (image: Getty Images)

What does inflation mean?

Inflation is an economics measure that shows how much the price of goods and services have risen over a set period of time.

In the case of the CPI, the headline time period used is a year - so the figure of 9.4% means prices are 9.4% higher on average than they were in June 2021.

All western countries use inflation to track how their economies are performing.

If the rate is high - as it is at present - it means the cost of living is likely to be rising for people across the UK, which means the value of money is likely to be decreasing.

So, in essence, we’re all probably poorer than we were a year ago.

Rates of inflation constantly shift as a result of several factors, the most important of which include:

  • Oil prices: higher oil prices make goods more expensive because it costs more to get them from A to B
  • Energy prices: higher energy prices make it more expensive to produce goods and services
  • Government policies: major tax cuts can increase spending, which can drive up prices

The ONS publishes updates on the UK inflation rate every month.

These figures have been in the news a lot so far in 2022 because inflation has been rocketing at a steep rate.

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Why is inflation so high?

There are several big reasons for why inflation is so high at the present moment.

These include:

  • The war in Ukraine: global food prices have been driven up as Ukraine is a major producer of important ingredients, like grain and sunflower oil.
  • Sanctions against Russia: western sanctions against Russia, such as the UK oil ban, and resulting retaliation from President Vladimir Putin have thrown energy and fuel supplies into doubt. This has sent prices soaring as Russia is a major exporter of oil and gas to Europe.
  • Global post-Covid recovery: As countries have emerged from Covid-19 lockdowns, demand for fuel and energy has rocketed as they have restarted their economies.

What are CPI and RPI?

The ONS has two main measures for inflation - the Consumer Prices Index (CPI) and the Retail Prices Index (RPI).

The CPI has been the official measure since 1996 and is calculated using a typical basket of goods and services that the UK frequently consumes.

This basket is weighted so that goods that are important to most households, like milk, have a greater influence over the headline inflation figure than luxuries, such as smart watches.

It’s used by the government to determine levels of state support, including benefits and the state pension, and also allows economists to make international comparisons.

As of June 2022, the CPI rate was 9.4%.

It means that something that cost an average of £1 last June is now 9.4p more expensive on average.

However, some average prices have risen well above this rate - for example, the average costs for some key energy and fuel product categories have roughly doubled.

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RPI was the official yardstick for inflation during the 20th century, and is now calculated so that the UK can see how current rates compare historically.

But it is still used to determine how prices should change for important things like train tickets and phone contracts.

It tends to track higher than CPI because it includes mortgage interest payments.

This means it is impacted by house prices, which have been rising for many years but have accelerated during the Covid pandemic.

The latest RPI for June 2022 is 11.8%.

What does current inflation mean for cost of living?

Whichever yardstick is used, both the CPI and RPI show that the UK cost of living has become much more expensive over the last 12 months.

The ONS says price rises are most pronounced in transport, where the CPI shows the average cost of motor fuel has gone up 42.3% year-on-year.

It means the price of moving goods and people around the country has become much more expensive.

Food prices are also higher - 9.8% up compared to 2021 - which has increased the prices of everything from supermarket value ranges to Lurpak.

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The Bank of England has a target of keeping the country’s inflation to 2% - something it manages using interest rates.

This level of inflation is viewed as a good thing by many economists, as they believe it encourages people to spend what they have today, rather than see it go up in price tomorrow.

The argument is that this behaviour contributes towards a healthy economy, where people spend money in a sustainable way, which creates more demand for goods and services and - in turn - maintains supply chains and employment.

However, with inflation currently very high - and expected to go higher this year, before coming back down in 2023 - it means people are less likely to spend their hard earned cash on anything other than the basics.

In part, this is why there are predictions the UK could face a recession - i.e. two successive quarters of 0% or negative economic growth.