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Inflation

Inflation is the term to describe a sustained increase in prices for goods or services. There are many measures of inflation. Traditionally, the Retail Price Index (RPI) was the most important - it looked at the prices of a 'typical' basket of goods. The CPI includes some things that are not in the RPI, most importantly housing related costs such as mortgage interest payments, house depreciation, buildings insurance, estate agents' and conveyancing fees.

High inflation creates instability and causes a number of economic problems. Central banks like the Bank of England are given the responsibility of controlling inflation by using monetary policy. The main weapon in their arsenals is control of the interest rate.

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