Inflation refers to the rate at which the average level of prices increases over time. In the UK, the government’s official measure of inflation is calculated from the change in the consumer prices index (CPI). This is measured over a 1-year period and is the measure on which the government’s target of 2% inflation (plus or minus 1%) is based and which the Bank of England is tasked with achieving.
CPI inflation relates to the rate at which the prices of goods and services bought by households are rising or falling. This can be thought of as the changing prices of a large, imaginary basket of goods and services bought by UK households. It would be pretty much impossible to include the price of every single good and service sold in the UK, so the CPI basket only includes a sample.
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