The Consumer Price Index (CPI) Explained

The Consumer Price Index, or CPI, is used around the world to measure inflation. It uses the prices of a fixed set of goods and services to measure change over a set period of time.

CPI is measured, recorded and published by the Office for National Statistics (ONS), and is used by the government for setting the inflation target. Although inflation can sometimes be seen in a negative light as it can mean an increase in prices, it can also be used as a spark to ignite the economy.

Now more than ever, it’s important to have a basic knowledge of CPI and inflation so you can protect your savings and understand what impact different events can have on the economy.

The Consumer Price Index, commonly known as the CPI, is one of three main estimates used to measure inflation. In the UK, the three main estimates are as follows:

• The Consumer Prices Index (CPI)
• The Consumer Prices Index including owner-occupiers’ housing costs (CPIH)
• The Retail Prices Index (RPI)

The fixed set of goods and services observed in the CPI is often described as a ‘shopping basket’ of over 700 representative items that are reviewed each year. Sometimes, certain goods or services are removed or swapped to accurately represent consumer spending patterns. A good example of this was throughout 2020, where certain items such as travel were removed from the ‘basket’ due to the restrictions put in place by the coronavirus pandemic. In 2024, 16 items have been added to the basket for the Consumer Prices Index. Additions include air fryers, vinyl music, gluten free bread, and edible sunflower seeds. Removals include hand hygiene gel, hot rotisserie cooked chicken, and bakeware.

The Consumer Prices Index (CPI) rose by 1.7% in the 12 months to September 2024, down from 2.2% in August.

The main factor affecting CPI is consumer spending habits, meaning that any trends or changes in price that encourage or discourage consumer spending will have an effect on CPI. However, consumer spending is impacted more broadly by global economic trends and domestic policies/ For example, in the last few years, we've seen the following factors affect CPI:

• Energy Prices: 2022 saw a surge in energy prices. The invasion of Ukraine caused significant disruptions in global energy supplies, leading to skyrocketing prices for gas and electricity, which heavily impacted household bills and transportation costs. Energy inflation was a central driver of CPI increases throughout 2022.
• Food Prices: Rising food prices, driven by global supply chain disruptions, Brexit and increased transportation costs also played a significant role. Food price inflation worsened in 2022 and into 2023, making it a significant pressure point for households.
• Increases in demand after COVID: As the UK economy reopened after the pandemic, pent-up demand for goods and services, especially in sectors like hospitality, travel, and recreation, led to price surges. The mismatch between rising demand and constrained supply further fuelled inflation.

CPI can affect savings by driving inflation up. If the rate of interest on your savings account is lower than the rate of inflation, you could effectively lose your money’s buying power.

For example, if you have £200 in a savings account with an interest rate of 1%, you will have £202 the following year. However, if the rate of inflation is at 2%, you would need to have £204 to have the same buying power you started with.

The best way to safeguard your savings against inflation is to look for an account with a competitive, fixed rate of interest that beats the rate of inflation, such as fixed rate bonds. You can also find inflation-beating interest rates on notice accounts and easy access accounts, both of which offer a little more flexibility and easier access to your savings should you need it.

With many different types of savings accounts available, it’s important to shop around to find an inflation-beating savings account that’s right for you.

You’ll find a choice of inflation-beating fixed rate bond savings accounts on our marketplace. They’re available for terms of six months up to five years, and it’s typically the longer-term bonds that offer the most competitive interest rates.

At Raisin UK, online banking is made easy thanks to a user-friendly dashboard which allows you to view all of your accounts with partner banks.

You can quickly and easily apply for savings accounts with inflation-beating rates from a range of UK partner banks by registering for a Raisin UK Account and logging in to apply. Don’t forget that it’s free to open an account.