The Consumer Prices Index (CPI)

Consumer Prices Index (CPI) annual inflation climbed to 1.9% in November, up from 1.5% in October according to the Office for National Statistics (ONS), which is just below the target of 2 per cent which is set by the Government.

Rising fuel costs have helped towards the rise of CPI, with unleaded around the 86p per litre back in January this year and now rising to around 109p.

CPI is used by the Government to measure inflation. It does not include council tax or mortgage interest costs.

ONS has a personal inflation calculator on its website as a guide for the public to measure their own inflation.

For further details go to: http://www.statistics.gov.uk/pic

Retail Prices Index (RPI)

Figures published today by the Office for National Statistics also reveal that annual inflation measured by the Retail Prices Index (RPI) - which includes housing costs such as mortgage interest payments and council tax rose to 0.3% from a rate of -0.8% in October. This is the first time since January of this year that the RPI index has been in positive territory.

RPI is used to negotiate wage increases, pensions, state benefits and index linked guilts.

Either one of these inflation measures can have a major influence on the economy as they will affect interest rate decisions, pensions and wage settlements.

What is deflation?

Deflation occurs when prices are declining over time. This is the opposite of inflation; when the inflation rate (by some measure) is negative, the economy is in a deflationary period.

The worry is that consumers will keep putting off the purchasing goods, because of deflation, in the hope that the item will drop in price even further.

Debtwizard comment

Petrol prices are starting to become a worry for many consumers, as any increase will reduce the amount of spending power they will have, especially when shops are looking for more profit with their Christmas sales.

Another problem will be the change in VAT due on the 1st January as this will revert back to its original amount of 17.5%, this in turn will make goods more expensive and will fuel inflation throughout next year.