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What is inflation?

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Inflation is the rising cost of the things we all buy. For example, it costs a lot more to buy a postage stamp today than it did 50 years ago. This is due to inflation.

Inflation is calculated by the rate at which the price of goods we commonly spend our money on increases, such as bread, wine, public transport or cinema tickets.

In real terms, if the average cost of goods rises by, say 2%, you would need to spend 2% more to buy the same things you bought twelve months ago.