![]() What do interest rates have to do with it?īut how does raising interest rates cool down inflation? Quite simply because we have less cash in our pockets to spend, there’s less that we can buy and that wretched cycle of more and more wads of cash, or cards being flung at goods and services, which then raise their prices slows down and prices eventually calm down. Costs have been pushed up as a result of vegetable and egg shortages as well as, again, the high cost of energy. Saving and Banking Exclusive Families of dying disabled children denied access to their savings with average loss over £2k Read Moreįood prices have also been a huge factor, with food inflation now sitting at a 45 year high of 18.2 per cent. At the same time, the war in Ukraine has meant less was available from Russia, putting further pressure on prices. There are, however, many other reasons that inflation has increased including the soaring cost of energy, with oil and gas in greater demand as life got back to normal after Covid. ![]() Then, once let out of our pens, as Covid eased, we splurged all that money we had saved up. Why did inflation start booming between 20? There are a number of reasons the rate of price rises jumped but one plausible theory is that during the lockdown years, many people accumulated money but didn’t have much on which to spend it. Analysts had expected it to be down to 9.9 per cent. ![]() It has gone down somewhat since then but yesterday the economy had a nasty surprise, recording an uptick in inflation from 10.1 per cent in January to 10.4 per cent in February. ![]() It scaled a high point of 11.1 per cent in October. Inflation has been galloping away in the economy since 2021. Inflation, the rate of increase in prices, deals a double whammy to our pockets, not only making the things we buy with our money more expensive, but also making our money worth less. The answer is because it feels it has to do so to tame inflation. So why does the MPC do it? Not to make itself popular, that’s for sure.
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