When the Office for National Statistics (ONS) calculates its monthly inflation figures, it does so using a basket of 744 goods and services that provides a fascinating insight into UK consumer habits.
What’s more, the basket of goods changes each year to better reflect changing trends.
The movers and shakers in the annual list provide a snapshot of our times, but there’s a serious side too. Inflation is currently falling after record 40-year highs but the cost of living crisis remains a real threat to millions of UK households.
Keep reading to find out what is next for inflation, its bearing on the Bank of England (BoE) base rate, and what future changes might mean for your savings and the cost of borrowing.
But first, let’s take a closer look at the inflation basket.
The inflation basket is used to calculate the changing costs of goods for the average UK consumer
The Consumer Prices Index (CPI) measures the average cost of a basket of goods to determine their changing price over time.
During the calendar year, the goods in the basket remain fixed, allowing for a true month-to-month comparison of price alone, but each year the list is revisited. This helps the basket reflect long-term spending trends and factor in the arrival of new goods or the removal of others from the market.
The basket contains everything from food and drink to the cost of car rentals and owner-occupier housing costs. It is hoped that this gives a full picture of UK consumers’ spending habits.
This year, vinyl records and air fryers are in, while draught stout is out
As part of the ONS’s 2024 shake-up, hand sanitiser and draught stout have lost their place in the basket, but air fryers, rice cakes, and vinyl records are in.
The introduction of vinyl marks its return after 22 years out in the cold and acknowledges the recent resurgence in record sales.
In part, this boom has resulted from nostalgia. Older shoppers are looking to replace lost or damaged vinyl and relive or recapture their youth. But a younger audience has also taken to the format over recent years.
Since the early 2010s, vinyl sales have been soaring. The bestselling records of that decade include classic albums by Fleetwood Mac and the Beatles, alongside new releases from Artic Monkeys, Liam Gallagher, and Adele.
In 2023, sales were aided by high-profile releases from Taylor Swift, with her album 1989 (Taylor’s version), and the Rolling Stones’ Hackney Diamonds.
Other sales trends are also clear. The cost of living crisis saw a huge rise in the sale of energy-efficient air fryers, with Sky News reporting in November 2022 that year-on-year sales were up by a massive 3,000%.
The removal of hand sanitiser from the basket, meanwhile, reflects life post-pandemic.
After record highs, inflation is back under control but still above the Bank of England’s target
CPI inflation reached a 41-year high in October 2021, when it hit 11.1%.
Since then, it has been slowly falling, thanks in part to the BoE increasing the base rate (a tool used to keep inflation under control). Inflation remains above the central bank’s own 2% target, though, and isn’t expected to fall quickly.
The minutes from the latest meeting of the BoE’s Monetary Policy Committee (MPC) confirm that CPI is projected to be 2.3% in two years and 1.9% by 2027.
Above-target inflation affects the spending power of your retirement savings, while the high base rate (alongside other external factors like the 2021 mini-budget) has affected the cost of borrowing and seen mortgage rates rise.
Even as inflation falls, it’s important to remember that prices aren’t dropping, just that they’re rising more slowly.
The need for careful household budgeting and a focus on your long-term plans remains key.
Get in touch
Whether you plan to invest in an air fryer or dust off your old vinyl records this year, HA&W can help you budget in the present while saving for the future. If you’d like to discuss the influence of inflation on your savings and investments or have any questions about any other aspect of your long-term financial plans, get in touch.
Contact us now to find out how our Chartered financial planners could help you.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
