Every idea in this course is hiding inside ordinary headlines. Each step below is a headline. The tools you have now: inflation is a speed, not a level. The official figure is an average, not your rate. The rate you keep is interest minus inflation. Weak money helps whoever owes fixed pounds. A rate rise reaches only spending.
Year to February 202310.4%
Year to February 20243.4%
The UK's real figures.
Headline: "Inflation falls to 3.4% — relief for households." That was the UK in February 2024. What can a reader say is true?
Prices rose 3.4% in the year, more slowly than before, and on top of the 10.4% before that.
Right. Speed, not level. Two years of rises stack to about 14%. The relief is that the climb slowed. Nothing came down.
Prices fell.
Not yet. Falling inflation is a slower climb. Prices fall only when the rate goes below zero, and 3.4% is a long way above it.
Households are back where they were.
Not yet. The rate is near normal. The level is 14% above two years ago, and it stays there.
Savings rate on offer5%
Inflation that year7%
Headline: "Savings rates hit 5% — best deal in a decade." Lesson 6 said the rate you keep is the interest rate minus inflation. A savings rate on its own tells you nothing. It only means something next to the inflation figure for the same year.
Same headline. Tap the number that decides whether 5% is a good deal.
Tap the part of the picture that answers it.
Savings rate on offer5%
Inflation that year7%
Pay growth that year6%
The central bank's rate5.25%
Inflation that year
Right. The rate you keep is interest minus this. Five against seven is a loss of about two. The decade's best deal is still a way of losing, only more slowly.
Savings rate on offer
Not yet. This is the headline number, and it is the one being tested. You need a second number to test it against.
Pay growth that year
Not yet. Pay is what a worker keeps. It says nothing about what a saver keeps. The saver's shopping is priced by inflation, not by wages.
The central bank's rate
Not yet. This is why the savings rate is 5%, not whether 5% is enough. The bank's rate is the cause. The test is prices.
Which idea is each headline hiding?
One card at a time. Tap the pile it belongs to.
Card 1 of 6
Inflation halves; prices still rising
Pensioners' costs rise twice as fast as the official figure
Savers lose £8bn to inflation despite record rates
Inflation back at target; prices 20% above 2021
Renters face inflation of 8% while homeowners see 2%
Pay rises 6%: the biggest real-terms cut in forty years
Inflation halves; prices still rising → Speed, not level
Not yet. This is speed, not level. Inflation halving is the speed dropping. 'Still rising' says the level goes on climbing.
Pensioners' costs rise twice as fast as the official figure → Average, not you
Not yet. This is average, not you. The official figure is the average shopper, and pensioners buy a different basket.
Savers lose £8bn to inflation despite record rates → The rate you keep
Not yet. This is the rate you keep. 'Despite record rates' means take the price rise off the savings rate, and what is left is below zero.
Inflation back at target; prices 20% above 2021 → Speed, not level
Not yet. This is speed, not level. 'Back at target' is the speed. '20% above 2021' is the level, and it did not come back.
Renters face inflation of 8% while homeowners see 2% → Average, not you
Not yet. This is average, not you. One number for the country hides that renters and owners buy different things.
Pay rises 6%: the biggest real-terms cut in forty years → The rate you keep
Not yet. This is the rate you keep. Take the price rise off the 6% and what is left is negative, which is what 'real-terms cut' means.
Speed, not levelstill · above
++
Average, not youtwice · while
++
The rate you keepdespite · real
The word in the headline that gives each idea away.Right. Three ideas cover most of the money news there is. One word in each headline gives it away: still, twice, despite, above, while, real.
Rate rises→Borrowing dearer, spending falls→Prices slow, if spending was the cause
Headline: "Rate rises will crush inflation." Lesson 10 said a rate rise reaches only how much people want to buy. So whether it works depends on where the rises came from. If people were borrowing to buy, dearer borrowing is the right tool. If a shortage caused the rises, a rate rise cuts spending and the shortage stays.
Same headline. A made-up year. Set where the price rises came from, and how hard the bank raised rates.
Inflation a year later10%
Spending cut to get there0%
Made-up numbers.
Where the price rises came from: A gas shortage · Size of the rate rise: None
Rises driven by a gas shortage, no rate rise. A year on, inflation is 10% and spending has been cut by 0%.
Inflation a year later9%
Spending cut to get there4%
Made-up numbers.
Where the price rises came from: A gas shortage · Size of the rate rise: Small
Rises driven by a gas shortage, a small rate rise. A year on, inflation is 9% and spending has been cut by 4%.
Inflation a year later8%
Spending cut to get there8%
Made-up numbers.
Where the price rises came from: A gas shortage · Size of the rate rise: Large
Rises driven by a gas shortage, a large rate rise. A year on, inflation is 8% and spending has been cut by 8%.
Inflation a year later10%
Spending cut to get there0%
Made-up numbers.
Where the price rises came from: Half and half · Size of the rate rise: None
Rises driven by half and half, no rate rise. A year on, inflation is 10% and spending has been cut by 0%.
Inflation a year later7%
Spending cut to get there3%
Made-up numbers.
Where the price rises came from: Half and half · Size of the rate rise: Small
Rises driven by half and half, a small rate rise. A year on, inflation is 7% and spending has been cut by 3%.
Inflation a year later4%
Spending cut to get there6%
Made-up numbers.
Where the price rises came from: Half and half · Size of the rate rise: Large
Rises driven by half and half, a large rate rise. A year on, inflation is 4% and spending has been cut by 6%.
Inflation a year later10%
Spending cut to get there0%
Made-up numbers.
Where the price rises came from: A borrowing boom · Size of the rate rise: None
Rises driven by a borrowing boom, no rate rise. A year on, inflation is 10% and spending has been cut by 0%.
Inflation a year later5%
Spending cut to get there2%
Made-up numbers.
Where the price rises came from: A borrowing boom · Size of the rate rise: Small
Rises driven by a borrowing boom, a small rate rise. A year on, inflation is 5% and spending has been cut by 2%.
Inflation a year later1%
Spending cut to get there4%
Made-up numbers.
Where the price rises came from: A borrowing boom · Size of the rate rise: Large
Rises driven by a borrowing boom, a large rate rise. A year on, inflation is 1% and spending has been cut by 4%.
When does a big rate rise cut spending the most and inflation the least?
When the rises came from a shortage. The rate cuts spending hard and prices barely move.
Right. A rate reaches how much people want to buy. A shortage is about how much there is to buy. So people spend 8% less and inflation falls only two points.
When they came from a borrowing boom.
Not yet. That is where a rate works best. The boom is made of borrowing, so dearer borrowing is the exact cure. Inflation falls nine points for a 4% cut in spending.
Always the same. A rate rise is a rate rise.
Not yet. Same rate rise, three different results. What pushed the prices up was different each time, and that cause decides how much a rate rise can do.
Move both controls.
Prices, from 100120
Pay, from 100122
Headline: "Prices up 20% since 2021, but wages up 22%." Lesson 7 said a pay rise is only a rise once prices are taken off it. Start both at 100. Pay is now at 122 and prices at 120. To see what pay really buys, divide pay by prices.
Prices, from 100120
Pay, from 100122
Same headline. Start both at 100. How much MORE does a month's pay buy now, in per cent?
%
Divide 122 by 120.
Right. About 1.7%, not 2. The gap is 122 divided by 120, not 22 minus 20. After four years of headlines, pay buys less than one extra coffee a week.
Headline: "Bank holds rates as inflation returns to 2%." Inflation ran 2%, 9%, 7% and 3% over the last four years. Slide to what a £100 basket from four years ago costs now.
Slide the marker to where you think the answer is, then press Lock. Nothing is scored.
1
your guess · £100
the answer · £122.50
£100£120£140
1Four years ago£100
Your guess: —
The target is met, and the basket is still over a fifth dearer than four years ago. Back at 2% describes this year's speed. The four years of climbing are still in the price, and 2% a year adds to them from here.
A money headline→A speed, an average, or a count of pounds→The thing it left out
A money headline is almost always one of three things. It is a speed, an average, or a count of pounds. The question to ask is always the same. Ask what the headline left out. One last headline, about the biggest borrower in most countries: its own government.
The debt, in pounds4%
National income, in pounds9%
How much each grew that year.
Headline: "Government debt falls to 95% of national income." National income is everything the country earns in a year. Prices rose 8% that year, and the debt in pounds went UP. Which idea explains it?
The figure is a mistake.
Not yet. Both numbers are right. Debt in pounds rose. Debt as a share of the country's income fell, because that income grew faster. The headline printed the share and left out the pounds.
The government paid some back.
Not yet. The pounds owed went up. Nothing was paid back. The thing the debt is measured against grew faster than the debt did.
Weak money lightens fixed debts. National income in pounds grew faster than the debt did.
Right. Lesson 8's idea, on the biggest borrower there is. The country's income rose with prices. The debt was fixed in old pounds. Nobody paid anything back, and the share still fell.
Lesson complete
Every money headline is a speed, an average, or a count of pounds. Ask what it left out.