UK inflation rate: is inflation good as rates rise to 10-month high - what increase news means for your money

• UK inflation rose to 3% in January, the highest in 10 months, driven by increased costs in several sectors
• Plane fares, higher grocery prices, and rising household goods costs were key factors contributing to the rise
• Private school fees saw a sharp increase after new VAT rules were introduced, impacting many families
• The rise in inflation puts pressure on the Bank of England to decide whether to cut interest rates
• Consumers may see continued price increases, but some goods like pasta and sugar have seen price drops

UK inflation surged to a 10-month high in January, driven by rising plane fares, food prices, and a sharp increase in private school fees, according to official figures.

The Consumer Prices Index (CPI) inflation rate climbed to 3% in January, up from 2.5% in December, the Office for National Statistics (ONS) reported. This exceeded analysts' expectations of around 2.8%.

The sharp rise intensifies pressure on the Bank of England as policymakers weigh potential interest rate cuts to keep inflation near the 2% target.

ONS chief economist Grant Fitzner said: “Inflation increased sharply this month to its highest annual rate since March last year.

“The rise was driven by air fares not falling as much as we usually see at this time of year, partly impacted by the timing of flights over Christmas and New Year. This was the weakest January dip since 2020.”

But what does the rise in inflation mean for the money in your wallet, and how can you expect it to affect the price of everyday items in the weeks and months ahead?

How have price changes affected inflation?

The rise in inflation to 3% last month was mainly due to higher plane and bus fares, along with price increases on everyday items like coffee, chocolate, and fruit juice. Meat and bread prices also went up by 2.3% compared to the same time last year.

Private school fees saw a big jump after the Labour Government added 20% VAT to tuition and boarding costs. Many schools passed this increase on to parents, leading to a 12.7% rise in private school fees over the past year. As a result, inflation in the education sector hit 7.5% - the highest level since 2015.

Grocery prices increased for several items:

• Coffee was 11.6% more expensive in January, compared to just 0.2% in December.
• Butter prices jumped 18.3% (up from 10.2% in December).
• Chocolate rose by 14.1% (compared to 11.7% in December).
• Fruit and vegetable juices increased by 6.2% (up from 2.5%).
• Cheese prices climbed 2.5% (compared to 0.9% in December).

Some items went from getting cheaper to becoming more expensive:

• Pizza and quiche were 4.6% cheaper in December but rose 0.7% in January.
• Frozen vegetables, which had dropped 0.2%, went up by 2.0%.
• Carpets and rugs had fallen by 2.9% but increased 0.8% last month.

Other products saw price cuts slow down:

• Fridges and freezers, which had dropped 4.1% in price in December, only fell 0.6% in January.
• Washing machines and dishwashers, which were 2.8% cheaper in December, only dropped 0.4% last month.

Meanwhile, some prices fell even faster:

• Pasta and couscous dropped 5.9% in January, compared to 2.4% in December.
• Sugar prices fell 2.1% (compared to 0.6%).
• Men’s shoes dropped 2.0% (compared to 1.2%).
• Rice was down 3.0% (compared to 2.7%).

Inflation slowed for some items but remained high:

• Olive oil was up 16.6%, but that was lower than the 22.3% rise in December.
• Potato prices increased by 3.0%, down from 6.5%.
• Children's shoes were 1.4% more expensive, compared to 4.6% in December.

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What does inflation mean for me?

An inflation rate of 3% means that, on average, prices across the economy are 3% higher than they were a year ago.

While this is lower than the peaks seen in recent years, it still means that the cost of living continues to rise, affecting household budgets.

For the average British consumer, a 3% inflation rate means that the price of many goods and services - such as food, transport, and utilities - will likely continue to rise but at a slower pace than during periods of high inflation.

Items like coffee, butter, and chocolate have already seen sharp increases, and shoppers may continue to notice higher costs at the supermarket. The price of plane fares, bus tickets, and fuel prices may also stay elevated.

However, some items - such as pasta, sugar, and men's shoes - have seen price drops, showing that not everything is becoming more expensive at the same rate.

What does it mean for interest rates?

The Bank of England sets interest rates to keep inflation close to its 2% target, but with inflation at 3%, the Bank faces a tough decision

If inflation remains high, the Bank may delay cutting interest rates, keeping borrowing costs high. If inflation keeps slowing down, the Bank may start cutting rates to make borrowing cheaper and stimulate the economy.

Mortgage holders on variable rates will continue paying higher interest rates until the Bank of England lowers rates. New mortgage borrowers may still face higher rates, although expectations of future cuts could help bring them down slightly.

Credit card and loan repayments will remain expensive for now, but if inflation keeps falling, borrowing could become cheaper in the future.

For now, consumers should budget carefully, shop around for deals, and keep an eye on future Bank of England decisions.

What do you think about the recent rise in inflation? How is it affecting your daily expenses? Share your thoughts in the comments section.