What is inflation and what does it mean for your money

Inflation can rise and fall. We can help you understand what it is and how it can affect your financial plan.

Inflation is the rate at which prices of things rise over time. It can impact things like your savings, investments and other parts of your financial plan.

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What is inflation?

The inflation rate is used to measure how quickly the prices of goods and services increase. It is calculated by the Office for National Statistics by comparing the average cost of a basket of items today against their price this time last year. For example, if a pint of milk cost £1 on this day last year, and costs £1.03 this year, then the rate of inflation is 3%.

It’s important to know what the inflation rate is, especially when managing your finances. The rate can change how much your money is worth. So, if there’s a higher inflation rate, your money may not go as far as it used to, as things cost more.

The inflation rate can rise and fall from year to year. This can lead to a period of higher inflation or lower inflation.

 

How could inflation impact me?

On a daily basis, inflation changes how much money is worth. If there’s a higher inflation rate, your money won’t go as far because things cost more.

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

Find out how inflation will affect your savings with our inflation calculator.

1. Simply enter an amount of savings you have.
2. Add the current inflation rate as a percentage %. Visit the Office for National Statistics for the latest figures.
3. We can then tell you the future buying power of your money.

Your result is based on the rate remaining the same for the next year.
 

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Based on these details, we estimate that your cash will have the buying power of ##value_inf## in a year’s time. This is based on an inflation rate of ##inflation##%.

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

For an up-to-date view of the latest inflation figures, visit the Office for National Statistics

The impact of inflation on savings and investments

Inflation and how much things cost

Inflation changes how much money is worth. For example, if there’s a higher inflation rate, your money may not go as far as things cost more. This can make it harder to know how, where and when to spend your money.

Inflation and your savings

Inflation can impact your savings. For example, if you put away a sum of money last year and inflation goes up, the money may not hold the same value as it previously did.

Inflation and your investments

Like with savings, the inflation rate can also have an impact on your investments and any potential returns. This is measured by the real rate of return, which is your annual growth percentage adjusted for inflation.

Say in the last year your investments value has grown by 8%. During this same year, the inflation rate has been at 5%. This would mean your real return is only 3%, once adjusted for inflation.

As the value of investments can fall as well as rise, there is always the potential to get less back less than you originally invested. And that’s before you take inflation into account.

Learn about investment risk

Make your money work harder for you

Make sure your money is working as hard as it can based on the current inflation rate. Check out the different saving and investing options available to you and see what may work best for your finances.

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