16th Aug 2007, by Andrew Barr

10 Yetis Tries to Explain Inflation

As an ex financial services public relations dude I still get asked about potential mortgage rate rises, also about the current USA Sub Prime market issues and what caused them (people who cannot afford to make repayments on a home being given mortgages that are far too big) and recently I am getting grilled on inflation and what it is all about.

I kind of knew what it is all about (honest) but trying to explain it is difficult so I went to the Bank of England site and found all the groovy info could ever need.

Here is possibly the best explanation of inflation and what it is I have read to date:

"We often hear about the rate of inflation being 2.0% or 2.7% or some other number.

The inflation rate is a measure of the average change in prices across the economy over a specified period, most commonly 12 months - the annual rate of inflation. We typically hear about the annual inflation rate for a particular month.

Mervyn King
Head of the Bank of England - think of him like an uber-important maths teacher

If, say, the annual rate of inflation in January this year was 3%, then prices overall would be 3% higher than in January last year. So a typical basket of goods and services costing, say, £100 last January would cost £103 this January."

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