Price growth slowed to 3.9% in the year to November, down from 4.6% in October.
A big factor in this decline is falling gasoline and diesel prices.
In an effort to curb inflation, the Bank of England raised interest rates to 5.25%, but has left them unchanged for the last three meetings.
What does inflation mean?
Inflation is an increase in the price of something over time.
If a bottle of milk costs £1 but costs £1.05 after 12 months then annual milk inflation is 5%.
How is the UK inflation rate measured?
The Office for National Statistics (ONS) tracks the prices of hundreds of items every day in an imaginative way “basket of goods”.
Each month’s inflation figure shows how much the price has increased since the same date last year.
You can calculate inflation in a variety of ways, but the main “headline” measure is the Consumer Price Index (CPI).
Economists say a key factor is cheaper gasoline and diesel prices.
Food prices are also falling, especially bread and dairy products, according to ONS dataS.
What is “core inflation”?
“Core inflation” does not include energy, food, alcohol and tobacco prices.
This rate as of November was 5.1%, down from 5.7% in October.
The Bank of England considers this figure as well as the CPI when deciding whether to change interest rates.
Why are prices increasing so quickly?
Soaring food and energy bills have contributed to high inflation.
Alcohol prices at restaurants and pubs also increased.
How does raising interest rates help solve inflation?
The Bank of England aims to keep inflation at 2%, but the current rate is still nearly double that figure.
This makes borrowing more expensive and means some mortgage holders will see their monthly payments increase. Some savings rates also increased.
When people have less money to spend, they buy fewer things, reducing demand for goods and slowing price increases.
Businesses also borrow less, making them less able to create jobs; some may cut staff.
It kept the rate at that level at three subsequent meetings in September, November and December.
What happens when inflation decreases?
Lower inflation doesn’t mean prices are falling – it means prices are rising more slowly.
Bank of England already predicted that inflation will fall to about 4.5% by the end of this year and fall further by 2024.
Are wages keeping up with inflation?
Although incomes are not growing as fast as before, they are still faster than inflation, so real wages have increased.
However, unions pointed out that many workers received smaller raises, leading to widespread strikes over pay.
The government previously argued that big pay increases could push inflation higher because companies could raise prices as a result.
What’s happening with inflation and interest rates in Europe and the US?
Many other countries are also experiencing cost-of-living squeezes for similar reasons: rising energy costs, shortages of goods and supplies, and the fallout from Covid.
The annual inflation rate for countries that use the euro is estimated at 2.4% in the 12 months to November, down from 2.9% in October and 4.2% in September. That’s the lowest level in more than two years.
Like in the UK, the European Central Bank (ECB) has raised interest rates to try to control rising prices.
At its December meeting, the US central bank kept its key interest rate unchanged for the third time at 5.25% to 5.5%. Interest rates remain at their highest level in more than two decades, but cuts are expected in 2024.