Inflation spirals to 5.4%: here’s what it means for you

As inflation hits its highest level in almost 30 years, here’s a look at what it means for you, and how it could affect your wallet.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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UK inflation recently soared to 5.4% – the highest level in almost 30 years. But what is inflation? And how will it affect your finances? Let’s break it down. 


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What is inflation?

When we talk about inflation, we talk about how much the prices of goods and services increase over a period of time.

The Office for National Statistics (ONS) measures inflation in the UK. For our purposes, the figure we’re discussing is the Consumer Price Index (CPI). The CPI looks at how much the price of the goods and services we buy increases each year. For example, if the price of, say, a loaf of bread is higher today than it was this time last year, we’re seeing inflation in action. 

Why is inflation so high right now?

CPI inflation hit 5.4% in December 2021. According to Sarah Coles, personal finance analyst at Hargreaves Lansdown, this is actually the highest level of CPI inflation since we started measuring it back in 2007. If we’d measured CPI for longer, this would be the highest level of inflation recorded since March 1992!  

So, why are we seeing such high inflation? There are a few causes:

  • Spiralling petrol costs: Fuel prices rose sharply last year, which made it more expensive to fill up at the petrol station.
  • Energy price hikes: A rise in wholesale gas prices means we’re all paying more on our gas and electricity bills right now.  
  • Rising food prices: Noticed your weekly food shop is more expensive than before? That’s because the prices of staples such as bread, meat and vegetables increased over the year.
  • Clothing price increase: Clothing prices rose by 4.5% in the year, according to research by Hargreaves Lansdown. 


Is high inflation a ‘bad’ thing?

Well, a little inflation can be good, because it encourages more people to buy things now before they possibly rise in price again. Such spikes in consumer spending can help the economy. 

Too much inflation is a different matter. If prices rise but wages don’t rise with them, then the cost of living spirals. People may find they can’t buy what they need, which means living standards drop. 

As it stands, the outlook is slightly concerning. Wages aren’t keeping pace with inflation, which means your salary won’t go as far as it did this time last year. That said, things could change: if inflation falls and wages recover, then living costs become easier to manage. 

What does high inflation mean for your wallet?

While there’s no way to completely ‘inflation-proof’ your wallet, there are steps you can take to ease the burden:

  • Create a budget and be strict about how much you can spend on non-essentials. 
  • Always shop around and do some research before buying products. You might, for example, switch to own-brand items or find similar products on special offer. 
  • If you’re looking for services (e.g. for home improvements), compare quotes from several contractors before hiring.
  • Don’t be deterred from saving money. Instead, if you’re looking to open a savings account, shop around for the best interest rate you can find. Easy access savings accounts, for example, could be helpful for some savers trying to build an emergency fund.
  • If you’re saving money you don’t intend to access in the next few years, you might try to secure a fixed rate. However, depending on the rates on offer, this might not make the most financial sense for your needs. Again, it’s worth doing some research!


There’s no doubt that a 5.4% inflation rate is a little alarming, especially since it could still climb higher in the coming months. However, don’t panic just yet. It’s possible to combat the impact of high inflation by budgeting carefully and avoiding the urge to overspend.

If you’re a saver, look for a savings account with a competitive interest rate, and consider fixing your rate if it makes sense for your goals. 

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