A basket of shopping cost £100 two years ago. Last year the same basket cost £110. This year it costs £115.50. It got dearer both years. The second rise was smaller than the first.
Inflation, last year10%
Inflation, this year5%
An inflation rate says how much prices rose in one year. From £100 to £110 is a rise of 10%. So inflation was 10% last year. From £110 to £115.50 is a rise of 5%. So inflation was 5% this year. The rate halved. The basket kept climbing.
Inflation, last year10%
Inflation, this year5%
Inflation was 10% last year. This year it is 5%. What did prices do this year?
Fell back halfway.
Not yet. Halving is what the rate did. The rate is how fast prices are climbing, and half as fast is still climbing.
Rose, by 5%.
Right. A 5% inflation rate means prices are 5% higher than a year ago. The rate came down. The prices did not.
Stayed where they were.
Not yet. Prices stay still when the rate is zero. Five per cent is a rise, on top of last year's ten.
5% a yearThe speed: how fast prices are climbing
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£115.50The distance: how far they have come
Inflation is the first number. The basket's price is the second.
Think of a car. The speedometer says how fast it is going. It does not say how far it has come. An inflation rate is like the speedometer. It says how fast prices are climbing. The price of the basket is how far they have come. When the news says inflation fell, the speed fell. The prices did not.
A basket cost £100 two years ago and £110 last year. Change this year's inflation rate and watch where the price ends up.
Two years ago£100
Last year£110
This year£107.80
Inflation this year: -2%
This year prices fell. The basket is £107.80: cheaper than last year, and still dearer than two years ago.
Two years ago£100
Last year£110
This year£110
Inflation this year: 0%
Prices stopped rising and sat at £110. Still a tenth above two years ago.
Two years ago£100
Last year£110
This year£112.20
Inflation this year: 2%
Rising slowly, and still rising. The basket is £112.20.
Two years ago£100
Last year£110
This year£115.50
Inflation this year: 5%
Inflation halved from 10% to 5%. The basket is £115.50, the dearest it has ever been.
Two years ago£100
Last year£110
This year£121
Inflation this year: 10%
Same speed as last year. The basket is £121 and climbing.
In how many of those settings did prices head back towards £100?
Whenever the rate fell.
Not yet. The rate fell from 10% to 5% and the basket rose to £115.50. A slower climb is still a climb.
Only when the rate went below zero.
Right. A falling rate slows the climb. Only a rate below zero reverses it, and even −2% left the basket above where it started.
When the rate was 0%.
Not yet. Zero means prices stopped. They stopped at £110, a tenth above the start, and stayed there.
Move the control.
Start£100
After the 10% year£110
After the 5% year£115.50
Each year's rise sits on top of the last one. Start at £100 and add 10%: that is £110. Now add 5%. The 5% is worked out on £110, not on £100, so it adds £5.50. The two rises together come to 15.5%, a little more than 10 plus 5.
Year to October 202211.1%
Year to October 20234.6%
The UK's real figures.
UK prices rose 11.1% in the year to October 2022, then 4.6% in the year to October 2023. Compared with October 2021, roughly how much higher were prices in October 2023?
%
The second rise sits on top of the first: multiply 1.111 by 1.046.
Right. About 16%, because 1.111 times 1.046 is 1.162. The rate fell by more than half. Prices climbed the whole time, and the second year's rise sat on top of the first.
Which of these headlines say prices FELL, and which say they rose more slowly?
One card at a time. Tap the pile it belongs to.
Card 1 of 6
Inflation falls to 3.2%
Prices lower than a year ago
Inflation drops to lowest in two years
Inflation turns negative
Rate of price rises halves
Shop prices down 1% on last year
Inflation falls to 3.2% → Rose more slowly
Not yet. Prices rose more slowly. Inflation is a speed, and 3.2% means prices are still climbing, just less fast.
Prices lower than a year ago → Prices fell
Not yet. Prices fell. 'Lower than a year ago' is about the level, and the level went down.
Inflation drops to lowest in two years → Rose more slowly
Not yet. Prices rose more slowly. A low inflation number is a slow climb, and a slow climb is still a climb.
Inflation turns negative → Prices fell
Not yet. Prices fell. When the speed goes below zero, prices are going down, and that is what negative means here.
Rate of price rises halves → Rose more slowly
Not yet. Prices rose more slowly. Half the speed is still a speed above zero, so prices are still going up.
Shop prices down 1% on last year → Prices fell
Not yet. Prices fell. 'Down 1% on last year' says the level is lower, not that the climb got slower.
Prices fellthe speed went below zero
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Prices rose more slowlythe speed dropped, still above zero
Right. Every headline with the word inflation in it is about the speed. Prices fall only when the speed goes below zero, and headlines say so in other words: lower, down, negative.
A weekly shop cost £80 two years ago. Inflation was 10% last year and 5% this year. Slide the marker to what the same shop costs now.
Slide the marker to where you think the answer is, then press Lock. Nothing is scored.
12
your guess · £70
the answer · £92.40
£70£85£100
1Two years ago£80
2Last year£88
Your guess: —
A marker below last year's £88 is the common mistake: "inflation halved" sounds like the shop got cheaper. Only the speed came down. The shop is 5% dearer than last year, on top of last year's 10%.
Start£100
After the 11% year£111
After the 2% year£113.22
A basket that cost £100 at the start.
A politician says: we have brought inflation down from 11% to 2%, so the hard years for family budgets are over. What can a reader say is true?
Prices are back to normal.
Not yet. The rate is back to normal. Prices are 13% above where they started, and a 2% rate adds to that rather than taking from it.
Prices will now start falling.
Not yet. Two per cent is a rise. For prices to fall the rate would have to go below zero. The people in charge of a country's money work quite hard to stop that happening.
Prices are rising slowly now, but nothing has undone the 11%. The basket is still dearer than it was.
Right. The rate is back to normal. The level is not. A 2% rate means the level keeps going up, slowly, every year.
Lesson complete
Inflation is a speed, not a level. Falling inflation still means rising prices.