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Understand what it is
Inflation measures how much prices rise over time. It is measured officially by the Office for National Statistics (ONS).
For its main measure of inflation, the ONS tracks the prices of about 700 everyday goods and services in a representative “basket”. The total cost of this basket forms the consumer prices index (CPI). The headline rate reported each month is the percentage change to the CPI compared with a year earlier. Previously, inflation was measured using the retailer prices index (RPI), which tends to be higher. It is still used for some things, including setting regulated train fares.
The most recent CPI inflation rate for October 2025 is 3.6%. This means, on average, something that cost £100 this time last year will cost £103.60 now.
Inflation is down slightly from the September rate of 3.8% but that doesn’t mean prices have stopped rising. It only means they’re not rising as quickly as before. For prices to stop going up, inflation would have to be 0%. For prices to fall, inflation would have to be negative – this is known as deflation.
Inflation is important – it means the same money will buy you less each year. It also has an impact on interest rates because the Bank of England is tasked with keeping inflation stable and as close to 2% as possible.
When inflation is too high, the bank usually raises interest rates to make borrowing more expensive and saving more attractive, the aim being to reduce spending and cool price rises. When inflation is falling, the Bank may reduce interest rates.
This has an impact on the cost of mortgages and the rates available on your savings.
Find your personal rate
Everyone has different shopping habits. And most people don’t make big purchases such as a car or a pricey holiday – which feature in the CPI basket – every year.
The ONS has a “personal inflation rate” calculator to help you see how quickly the cost of your own spending is rising, based on what you actually buy.
To use the calculator, you need to enter details about your household spending – such as your mortgage or rent, energy bills, food, transport, and leisure. The calculator will then work out how your individual rate of inflation compares with the UK average.
Your personal inflation rate matters because no two households spend money in the same way: people who spend more of their income on food or energy may face much higher inflation than the official CPI figure suggests.
Knowing your personal inflation rate can highlight where your budget is being hit hardest and help you take action. For instance, realising that you spend £50 a month more on food than a year ago could make you reconsider your grocery shopping habits.
Beat food inflation
Increases in the cost of everyday food items such as bread, fruit, vegetables, dairy, and meat have been outpacing general inflation over the past year. The latest figures from the market research company Worldpanel by Numerator show annual grocery inflation was running at 4.7% in the four weeks to 2 November, down from 5.2% in the previous four-week period.
Switching to a budget supermarket could help you tackle food price inflation. Which? research shows Aldi is consistently the cheapest supermarket, with Lidl close behind. If you shop elsewhere, make sure you are signed up to any loyalty scheme for access to the best offers.
To keep costs down further, set a weekly budget, write a shopping list, and stick to it. Opt for own-brand products, buy in bulk when discounts are genuine, and choose seasonal or frozen produce which tend to be better value.
Avoid rising energy prices
Energy bills might have come down from their 2023 peak, but we are still paying significantly more for gas and electricity than we were before the energy crisis.
Locking into a fixed-rate tariff can protect you from future price rises. Some tariffs are offering savings of nearly £200 compared with Ofcom’s energy price cap which will rise to £1,758 from 1 January 2026.
For example, Outfox Energy’s 12-month fixed deal offers an average annual bill of £1,570, saving you £188 against January’s price cap. Alternatively, Ecotricity’s one-year fix will typically save you about £155 over a year.
If you’ve switched the heating on during the recent cold snap, keep the heat in by draught-proofing and by only warming the rooms you need. You can also reduce energy use by switching off lights and appliances and choosing eco-settings on household appliances.
Switch to an inflation-busting savings account
Inflation can erode savings in cash accounts by decreasing the purchasing power of your money over time. If your savings account interest rate is lower than the inflation rate, you are losing money in “real” terms, even if the balance in your account is growing.
According to the financial data provider Moneyfacts, about half of savings accounts beat the current inflation rate of 3.6%. For your money to grow in real terms, you’ll need to switch your cash to one of these accounts.
In the easy access savings market online banks have the best rates: Sidekick pays 4.48% AER (falling to 3.48% after six months) on balances of £10,000 and over, Cahoot offers 4.4% for a year and Chip 4.37%.
Table-topping one-year fixed-rate bonds pay similar rates to easy access accounts at the moment – the best rate is from LHV Bank at 4.46%. One advantage of fixed-rate bonds is that they usually have a considerably higher limit than easy access accounts – for example, you can save up to £1m in the LHV one-year bond.
Things are a lot rosier for savers than they were back in October 2022 when inflation peaked at 11.1% – at that time it was impossible to find a savings account to beat it.
Consider investing
If you’re aiming to save for the long term, investing may be a more effective way to protect your money from the impact of inflation.
To beat inflation, you generally need to invest in assets that deliver returns higher than interest rates. Over time, stocks and shares have historically offered this potential. They often outpace inflation, although this isn’t guaranteed.
It’s important to remember that investing carries risk. Spreading your money across different asset types, such as equities, bonds, and property, can help diversify your portfolio, regardless of what inflation or interest rates are doing. Starting early, paying in regularly, and focusing on the long term can help your portfolio keep up with inflation and potentially grow in real terms.
Finding investments that are fully protected against inflation can be difficult, but a certain type of government bond – known as index-linked gilts – can help you shield your money from rising prices.
When you buy an index-linked gilt, you’re effectively lending money to the UK government. In return, it promises to repay your original investment adjusted in line with inflation as measured by the RPI, along with regular interest payments. You’ll receive the full inflation-adjusted amount when the bond reaches its maturity date, which is usually in several years’ time.
Gold is often viewed as a reliable hedge against inflation because its value tends to hold steady, or even rise, when the purchasing power of money declines. Unlike cash, which loses value as prices increase, gold is a tangible asset with limited supply, making it less vulnerable to currency fluctuations. But bear in mind that the price of gold can be volatile and it doesn’t generate income, so it is not guaranteed to always keep pace with other long-term investments.
