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What is inflation?

In recent months we have been hearing about the cost of living crisis, but what does it really mean?

One of the main reasons we have seen an increase in the cost of living is because of the conflict in Ukraine. One of the biggest impacts of the conflict on many countries is the lack of gas Russia has supplied to many European countries. Even though the UK personally doesn’t import a lot of gas from Russia, in 2021 the UK only imported 4% of its gas supply from Russia and this year it has imported none from Russia, it may seem strange why the UK is so affected. However, since many countries import more gas from Russia, they have experienced a huge cut in their supply this year. Over the summer Nord Stream 1, which supplies the EU with gas from Russia, had been importing only 20m cubic metres of gas a day compared to its usual 170m cubic metres. This means not only do EU countries have a gas shortage, but the international gas market will have a shortage. This shortage has caused the wholesale price of gas by 210%.

The conflict in Ukraine has also led to a rise of 14.6% in food and drink prices. This is because there isn’t enough grain available. The last time the UK experienced inflation like this was back in April 1980, when most foods had seen a significant increase.

When will inflation come down?

When inflation starts to decrease, we won't see a decrease in prices, it means that prices are just not increasing as fast as they were.

For example, if in one year the price for milk was £1.00 and it increased to £1.10 the year after, this would mean that prices have inflated by 10%. Then if the price then increased to £1.15 this is an inflation of 5%. However, since the rate of inflation is lower than the previous years, it means that inflation has gone down.

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