What is inflation and what is its current rate in the UK and Europe? Business News

The Bank of England defines inflation simply as a term used by economists to “describe the increase in prices over time”.

Rising costs of goods and services in the high streets of the UK indicate that the value of the pound sterling is falling, which in turn means a reduction in consumers’ purchasing power and therefore their quality of life , because they are discouraged from spending more than they can afford.

This in turn eats away at national economic growth.

Follow the latest reaction to Rishi Sunak’s spring statement

“A healthy economy must have a low and stable inflation rate,” the central bank explains. “The government is setting a target of how much overall prices should rise each year in the UK. This target is 2%. It is the job of the Bank of England to keep inflation at that target.

“A little inflation is helpful. But high and unstable inflation rates can be harmful. If prices are unpredictable, it is difficult for people to predict how much they can spend, save or invest.

“In extreme cases, high and volatile inflation can cause an economy to collapse. Zimbabwe is a good example. He experienced this in 2007-2009 when the price level rose by around 80 billion percent in a single month. As a result, people simply refused to use Zimbabwean banknotes and the economy came to a standstill.

The Bank of England sets monetary policy to exercise control and prevent such situations, primarily through the management of interest rates.

“Higher interest rates make it more expensive for people to borrow money and encourage them to save. This means that overall, they will tend to spend less, ”continues the bank.

“If, overall, people are spending less on goods and services, prices will tend to rise more slowly. This reduces the rate of inflation.

In Britain, the phenomenon is measured monthly by the Office for National Statistics (ONS), which checks the price of 700 typical goods and services on which British consumers regularly spend money, from bread and milk to cars and holidays abroad.

The total price of a “basket” of these items is calculated to give us the Consumer Price Index (CPI), which is compared to its equivalent a year earlier to reveal how much the inflation rate has increased over the past 12 months.

On Wednesday morning, hours before Chancellor of the Exchequer Rishi Sunak is due to deliver his spring statement in the House of Commons, the ONS released its latest figures revealing the UK’s inflation rate had peaked 30 years old.

He said the CPI’s measure of inflation rose to 6.2% last month from 5.5% in January, which was its highest level since March 1992, when it rose at 7.1%.

The development has put renewed pressure on Mr Sunak to announce additional help for UK households facing a spiraling cost of living crisis, with soaring energy and fuel prices in the domestic market being a particular cause for concern even before the start of Russia’s war in Ukraine last month, exacerbating international supply problems.

In Europe, the inflation rate within the eurozone rose to 5.8% in February, from 5.1% in January, as the first effects of the war were felt, prompting the European Central Bank to act and moderate its efforts. own impending economic crisis.