In the News Teaching Activity: A Surprise Fall in the Rate of Inflation (Sept 2023)

The August CPI inflation rate fell for the third month in a row to 6.7%. Have a go at this free teaching activity, which includes a downloadable worksheet and suggested answers.

Inflation has been a significant economic problem for the UK running at a rate well above the UK’s inflation target since August 2021. According to this BBC article, inflation fell more than was expected, largely because of a slowdown in food price rises. Despite this, food and drink inflation was still very high at 13.6% (see the Table), which is particularly punishing for poorer households who usually spend a higher percentage of their income on food. The fall in inflation was likely to be one factor behind the Bank of England’s decision to hold the Bank base rate at 5.25% last week.

UK inflation: Slowing food prices drive surprise fall (BBC News)

Read the article and then answer the following questions.

1. What goods and services are included in the ‘basket of goods’ monitored for the calculation of the CPI inflation rate?
2. When the inflation rate falls, what does this mean is happening to the price level in the economy?
3. Discuss why the lower-than-expected inflation rate may be a reason why the Bank of England did not increase interest rates.