How has the price of milk and football changed over time?
How have prices changed?
Every month a team of specialists collects around 180,000 separate prices of about 700 items covering everything from hamsters to haircuts, and vitamins to vacuum cleaners.
Over the past 30 years, the price of a typical basket containing all of these items has roughly doubled.
But within that super-sized basket, the price of some items has risen much faster than that. And the price of other items has hardly changed at all.
Take the cost of a pint of milk and watching a football match. How do you think these prices have changed over time?
Well the price of a pint of milk has doubled since 1990. That works out as an increase of around 2% each year, in line with the typical basket of all items.
Meanwhile the cost of watching football has rocketed. Over the same period the price of a match ticket has increased more than six times, or around 8% each year.
What is inflation?
Think of a shopping basket filled with items that nearly everyone buys. Inflation is the rate of increase in the prices of items in that basket.
Like many things in life a little bit of inflation is fine. But high and unstable rates of inflation can be harmful.
Zimbabwe in the 2000s is a good example. In 2007-2009, inflation rates rose to a peak of around 80 billion per cent each month.
As a result, people simply refused to use Zimbabwean banknotes and the economy ground to a halt.
How do we make sure prices don’t rise too quickly?
Here at the Bank of England it is our job to make sure that price rises are limited, as this supports a stable and healthy economy.
We have a 2% target for inflation (given to us by the Government). Of course, the price of some things will go up by more than others – and some prices might go down – but on average the price of items in the shopping basket should go up by 2% each year if we are meeting our target.
To meet the inflation target we use a key interest rate in the economy, known as Bank Rate.
If inflation looks set to go above target we would probably increase interest rates so people spend less which tends to reduce inflation.
Or if inflation looks likely to fall below target we would probably cut interest rates to boost spending in the economy and help inflation to rise. For instance, following the uncertainty caused by the vote to leave the EU, the Bank of England cut interest rates (and announced other measures to support the UK economy) in August 2016.
Since the Bank of England began targeting inflation in 1997, inflation has averaged about 2%.