What inflation means for you

Inflation measures how quickly prices are going up.

So if inflation is high, your money doesn’t stretch as far and it can be harder to save and plan for the future.

But we’ve just heard that the UK's inflation figure for April was slightly off.

The Office for National Statistics (ONS) originally reported that prices rose by 3.5% over the previous year.

But this week, it admitted it should have been 3.4% instead - thanks to incorrect road tax data from the Department for Transport.

A 0.1% difference might not sound like much. 

And in truth, it won’t make a massive difference to your wallet.

But it’s a good reminder of why inflation matters, how it’s measured and what it means for your money.

How is inflation tracked?

The ONS measures inflation by tracking the prices of hundreds of everyday items in an imaginary shopping basket, such as milk, tea and bread.

It also includes larger purchases that might not be in your weekly shop, such as TVs, beds and new cars, as well as services such as having a haircut.

The headline inflation figure will show how much the price of these goods and services has gone up.

So when inflation is 3.4%, it means that, on average, the things in this virtual shopping basket are 3.4% more expensive than they were a year ago.

Do prices go down if inflation falls?

If inflation falls, it doesn’t mean prices are falling too.

It just means they’re not going up as quickly.

What does inflation mean for your money?

If prices are rising, the money in your pocket doesn’t go as far, unless your income is going up at the same rate.

The government has set the Bank of England (BoE) a target of 2% inflation.

So when inflation gets too high, the BoE can raise interest rates to bring it back under control and closer to its target.

This base rate then influences the interest rates that banks and lenders offer to customers.

A rate increase makes borrowing more expensive and people will have less money to spend elsewhere.

That, in turn, means demand drops, slowing price increases and helping inflation fall.

But if inflation is too low, the BoE may cut interest rates to make borrowing cheaper, encourage spending and drive economic growth.

Does the error in the inflation figure matter?

The ONS says it won’t be correcting April’s inflation figure officially, because it wasn’t a big enough mistake to meet its threshold for revisions. 

But it does plan to review how it checks data from other departments.

For most of us, the impact of a 0.1% error is minimal. 

But when policymakers and central banks use these figures to decide interest rates, even small errors can be significant. 

It shows how much hinges on accurate data - and how important it is to get the details right.