Understanding Inflation and Its Impact on Your Money
We hear about inflation regularly, but many people don’t fully understand what it means or how it affects their lives. If your weekly shop feels like Yom Tov shopping every time you go, you’ve probably already experienced inflation.
Inflation happens when prices rise over time, reducing the value of money. This means £10 today buys less than it did a year ago. For families trying to make smart financial decisions, inflation presents both challenges and opportunities to plan wisely.
What is inflation?
Inflation is when the cost of goods and services goes up, making your money worth less. For example, if a loaf of bread cost £2 last year and now costs £2.20, that increase is inflation. This gradual rise is measured using tools like the Consumer Price Index, which tracks the average cost of a “basket” of goods and services such as food, clothing, and transport.
Inflation is a normal part of life, but when prices rise too quickly, it can become more challenging for families to afford everyday essentials. Understanding inflation can help you save, spend, and plan better.

What causes inflation?
One common cause is high demand for goods and services. When businesses see people are willing to pay more, they often raise prices. For example, if everyone flocks to a new bakery for challah, demand might outpace supply, pushing prices up.
Another cause is rising production costs. When businesses pay more for ingredients, wages, or rent, they pass these costs on to consumers. This was seen during the recent cost of living crisis following the Ukraine war, when the prices of wheat, cooking oil, and petrol surged, driving up the cost of everyday essentials for families.
Governments and central banks also play a role. When they introduce too much money into the economy, the value of existing money decreases, and you can buy less with the same amount. They may raise interest rates to counter inflation, which slows spending and stabilises prices.
No matter the cause, the result is the same. Prices rise, and your money doesn’t stretch as far.

How inflation impacts your life
Inflation affects your finances in ways you might not immediately notice. The weekly shop costs more, filling the car feels pricier, and energy bills climb higher. Even small increases add up and put pressure on family budgets.
Savings are also affected. If inflation is 3% but your savings earn just 1% interest, you effectively lose 2% of your money’s value each year. It feels like your money is shrinking even though it’s sitting in the bank.
On the flip side, inflation can sometimes work in your favour. If you have a fixed-rate mortgage, the real value of what you owe decreases over time. Your payments stay the same, but money is worth less. If you locked in the price of an event hall during Covid for your son’s wedding, by the time the simcha happens, it might feel like a bargain.
How to effectively manage inflation
Between 2020 and 2025, the UK’s average annual inflation rate was around 5%, with sharp spikes making essentials feel more expensive. Even though prices have risen, minor adjustments can help you stay in control.
- Start by reviewing your budget to see where your money is going. Tracking expenses helps identify areas where you can cut back without sacrificing what matters most. Focus on prioritising essentials for your family.
- Consider ways to increase your income, such as working extra hours or taking on a side job, to offset rising costs.
- Savings also need attention. A standard bank account might not protect your money from inflation. Explore higher-interest savings accounts or carefully chosen investments to help your money grow. Seek professional advice for big financial decisions.
While inflation can feel overwhelming, thoughtful planning and small steps can help you manage rising costs and build a stronger financial foundation for the years ahead.