Inflation

  Inflation is a measure of increasing costs of living, and is usually derived from the Retail Price Index, a measure of the cost of an average household's monthly spending on goods and services.

  It is very important economically to keep inflation down to a reasonable level, and in the UK the Bank of England is charged with controlling inflation by raising or lowering the base rate, to manipulate the amount of 'surplus' money in the economy.

  Using interest rates to manipulate the money supply and therefore inflation is the preferred method of most governments nowadays - previous methods included changing taxation levels and government spending.

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