Could where you live affect your inflation rate?

person holding an empty supermarket basket

In recent months, it’s been hard to escape the headlines that the inflation rate in the UK has hit a 40-year high.

A post-pandemic surge in demand, coupled with supply chain issues exacerbated by the war in Ukraine, have seen the cost of fuel, food and energy rise sharply. Further increases are set to hit your pocket later this year, too.

Understanding how inflation affects your spending and your finances can help you to plan – and now a new government initiative could offer more insight into inflation than ever before. Read on to learn what this means for you, and the simple steps you can take to make your money go further.

“Local” inflation set to show the effect of price rises across the country

At present, the Office for National Statistics (ONS) calculate the UK’s inflation rate by considering the prices of a “basket of goods”. Each month, the ONS measure the cost of around 700 goods and services from more than 100,000 different retail outlets.

This basket of goods changes to reflect trends. For example, in 2022 meat-free sausages, sports bras, pet collars, and antibacterial surface wipes replaced men’s suits, doughnuts, and coal.

Now, the ONS is planning another radical change to the way they measure inflation. They have announced they will produce localised inflation figures by using data from supermarket tills and other regional sources.

The ONS will use real-time data from supermarket checkouts, along with online sales of second-hand cars and rail ticket fares, as part of an initiative to digitalise the way they calculate inflation.

About 60% of grocery retailers are participating in the data collection, which will tell statisticians how much of each item is bought at each store across the country. The figures will not reveal personal data about purchasers.

Mike Hardie, head of inflation statistics at the ONS, says that the new data will help to show how inflation affects different regions because it will gather much more information.

Mr Hardie says: “The current sample that we have of about 200,000 prices isn’t really sufficient to provide robust regional estimates of inflation. That’s why we’re incredibly keen to use the scanner data, which would put us in a much better place to produce those estimates, because it is essentially a census of everything that’s been purchased in stores across the UK.”

Under the scheme, the price information used to calculate inflation will rise from hundreds of thousands to hundreds of millions, and reach one billion in a few years’ time.

Why inflation matters

Recent global events like Covid-19 and the war in Ukraine have led to rising food prices and growing fuel and energy costs. In turn, these climbing prices have driven the UK’s current high inflation rate, which has one main knock-on effect on your finances.

Simply put, a higher inflation rate means your money doesn’t go as far as it did before. Your weekly shopping budget might not stretch to as many items, for example, or you could find the money you spend on petrol doesn’t fill your car’s tank like it used to.

It also affects things like the real returns on your cash savings. For example, even though interest rates are rising, it’s highly unlikely that your cash savings are currently keeping pace with the rising cost of living.

National vs local vs personal

Even in stable periods, it’s wise to keep an eye on the UK’s overall inflation rate to understand its impact on your finances.

Additionally, the government’s upcoming localised inflation figures, calculated using a much wider range of data, will give an even clearer view of how prices in your area will be affected.

Knowing how inflation affects you personally can be useful when it comes to your financial plan. While local inflation is a great step in understanding how inflation affects you, there’s a further step you can take to gain a greater understanding of your finances: calculating your personal inflation rate.

How to work out your personal inflation rate

Follow this simple process to calculate your personal inflation rate:

  1. Add up your current monthly expenditure – regular outgoings, not one-off payments
  2. Add up your monthly expenditure for the same period last year
  3. Compare the two figures
  4. Repeat for any additional years you’d like to compare.

For example, if you spent £4,600 in March 2022 and £4,000 in March 2021, your personal inflation rate has increased 15% year-on-year.

There’s one key reason why this insight is so powerful. Both the national and local inflation rates are based on averages, but you aren’t “average”.

For example, if you drive more than the average, inflation might affect you more significantly because you spend more on fuel. You might also live in a larger house than most, meaning your energy bills are higher.

Understanding your personal inflation rate gives you the power to adjust your financial plan to ensure you remain on track to reach your goals.

Get in touch

The introduction of local inflation rates should be welcomed, as they ought to give you a clearer picture of how your area is affected. But they don’t tell the whole story, and for that reason it’s worth understanding your personal inflation rate as well.

We can help you to build a financial plan that takes the rising cost of living into account. To find out more, contact us by email at or call us on 01189 876655.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.