Definition
- Inflation
- Inflation is a general and ongoing rise in the level of prices across an entire economy, so that each pound buys less over time.
- Not to be confused with: Relative price change
- A relative price change is a rise or fall in the price of some goods compared with others, such as dearer rail fares alongside cheaper laptops.
Inflation in brief
Inflation is the rate at which the general level of prices rises over time, usually measured as the percentage change in a consumer price index over a year. When inflation is positive, each pound buys fewer goods and services than a year earlier. It is not the same as prices being high, only as prices rising.
The figure
In the United Kingdom, consumer prices rose by 3.9% in 2025, the 65th highest rate of the 182 countries with data.
Source: World Bank, Inflation (FP.CPI.TOTL.ZG).
Common questions
- How is inflation measured?
- Statisticians price a fixed basket of goods and services that households buy and compare its cost with a year earlier. The percentage change is the inflation rate.
- Does inflation mean prices are falling?
- No. Falling prices are deflation. Falling inflation, called disinflation, means prices still rise but more slowly.
- Who loses from inflation?
- People whose incomes or savings do not rise as fast as prices, such as savers earning a low interest rate, lose purchasing power.
Test yourself
What is the difference between inflation and relative price change?
Inflation is most prices rising together, year after year; a relative price change is some prices moving against others.