What does inflation mean for your money?

What does inflation mean for your money?

Inflation can rise and fall. But what exactly is it? We can help you understand this and how it can impact your financial goals.

What is inflation?

Inflation is the term given to describe rising prices. The Office for National Statistics calculates the rate of inflation by comparing the average cost of goods and services (or basket) of items today, against their price this time last year.

So, if a pint of milk cost £1 this time last year, and costs £1.03 this year, then the rate of inflation is 3%.

This illustration shows how inflation can impact your savings if inflation was at a rate of 3%. The buying power of £10,000 in Year 1 equates to £9,700 in Year 2. The figures have been rounded up to the nearest whole number.

Can rising inflation affect your finances?

The rate of inflation affects the value of your money. If prices are going up, you won’t be able to buy as much with your earnings or savings.

This illustration shows how inflation can impact your savings if inflation was at, for example, 3%.

You can find the latest inflation information at the Office for National Statistics. It is also worth remembering that the rate of inflation can rise and fall.

Try our inflation calculator

If you want to find out how inflation will affect your savings, enter an amount, along with the current inflation rate. We’ll then tell you the future buying power of your money, based on the rate remaining the same for the next year.

Cash amount held:

£

Inflation rate %:

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The calculator is an estimate. It does not include interest you could earn over time. The rate of inflation can rise and fall.

For an up-to-date view, visit the Office for National Statistics.

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