The inflation figure gives an idea of how fast the cost of living is rising in the UK but here are a few things you might not know.

Inflation is falling – so prices are still going up, just not as quickly.

According to the Office for National Statistics, UK inflation was 7.9% in the year to June – a slowdown from 8.7% recorded in May.  Despite this, prices are still rising quite sharply compared to a year ago, just at a slower rate than they have been. Prices are likely to keep going up over the next few months.

 Costs might be rising even faster.

The inflation figure is an average – so the cost of living could be rising at a very different rate to what’s reported in the news, depending on what money is spent on. The Office for National Statistics which calculates inflation, bases its numbers on a basket of goods that reflects what most people across the UK are buying. Food inflation is currently at 17.3%, much higher than the average rate, so people who spend a greater proportion of their outgoings on food will find their personal inflation rate is higher than the 7.9% headline figure.

 Will prices ever fall?

Occasionally prices will fall very slightly compared to the previous month, but they are much less likely to fall year-on-year.  Falling prices aren’t always a good thing, if people expect that prices are likely to fall, they delay spending with the aim of getting a cheaper deal later on. That means businesses have less money coming in, so they try to find ways to cut costs – most likely by cutting wages or laying off staff.  So, prices falling can mean people lose their jobs, which in turn makes prices fall further. This is “deflation”, a different kind of economic crisis that brings its own set of problems.  That’s why the Bank of England aims to have prices consistently rising by 2% – it’s better to aim for a bit of inflation than to risk the negative effects of prices falling.  It’s important to remember that the price rises seen recently have been primarily driven by global energy prices. These are expected to come down, but not to as low as they were before, and any fall in energy prices will take time to feed through into the wider economy.