Here is a number that should bother you. When Rishi Sunak’s numeracy charity, The Richmond Project, ran the UK’s largest-ever financial literacy study in 2026, more than half of 18 to 34-year-olds scored “poorly” or “very poorly”. Only 28 per cent of UK adults could answer three basic questions correctly. One of those three questions was about inflation.
That matters, because inflation is the quiet tax on everything you own. It does not send you a bill. It just makes your money buy a little less each year, and if you do not understand how it is measured, you will keep being confused by a gap that has a perfectly good explanation.
The gap goes like this. The news says inflation is 2.8 per cent. You look at your rent, your weekly shop and your energy bill and think, “in what universe?” You are not wrong. The headline is not lying either. You are both describing the same economy, and you are both right. Let me show you why.
What inflation actually is
Inflation is the rate at which prices rise over time, which is the same thing as the rate at which the value of your money falls. If prices go up 3 per cent over a year and your savings earn nothing, your money buys 3 per cent less than it did. The pound in your pocket has quietly shrunk.
To measure that, the Office for National Statistics tracks the price of a “basket” of around 700 goods and services, from a loaf of bread to a streaming subscription to a pint in the pub. Every month it collects something like 180,000 prices from shops and websites across the country, then compares the total cost of the basket with a year earlier. The change is the inflation rate.
So far, so simple. The complication is that there is not one basket and not one number. There are several, and the differences between them are exactly where your confusion lives.
The three numbers you will actually see
CPI — the headline. The Consumer Prices Index is the one quoted on the news and the one the Bank of England targets at 2 per cent. In the year to May 2026 it was 2.8 per cent. CPI deliberately leaves out most housing costs for owner-occupiers, including mortgage interest. That keeps it consistent across countries, but it also means it ignores one of the biggest costs many households face.
CPIH — the fuller picture. CPIH is the same idea with owner-occupiers’ housing costs and council tax added in. It is the ONS’s preferred lead measure, and in the year to May 2026 it ran at 3.0 per cent. It tries to answer a fairer question: what does it actually cost to keep a roof over your head, not just to fill your trolley?
RPI — the old measure that refuses to die. The Retail Prices Index is the granddad of the three. It includes mortgage interest payments and is calculated using older maths (more on that below), which means it almost always runs higher. In May 2026 it was 3.1 per cent. RPI lost its official “national statistic” status years ago because the ONS considers it flawed, yet it still quietly sets rail fares, the interest on some student loans, and the payouts on certain government bonds. Funny how the measure officials call unreliable is the one they keep using when it suits.
How they are calculated, and why RPI runs hot
Two things make these numbers diverge.
The first is the basket and the weights. Each item is weighted by how much of the average household budget it eats up. Housing, food and transport carry big weights; postage stamps carry tiny ones. CPIH includes housing for owners; CPI mostly does not; RPI handles it differently again. Change what is in the basket and how heavily each thing counts, and you change the answer.
The second is more technical but worth knowing, because it explains a structural gap. CPI and CPIH average prices using a method (the geometric mean) that assumes people switch to cheaper alternatives when one product gets dear. RPI uses an older method (the arithmetic mean) that does not. This is called the “formula effect”, and on its own it makes RPI run roughly 0.5 to 1 percentage point higher than CPI, before you even count the housing differences. That is not a rounding error. Over a few decades it is the difference between two very different-looking lines on a chart.
There is also a fourth measure nobody quotes but everyone feels: the cost of the essentials you cannot avoid. Food, energy, rent, fuel, council tax, insurance. There is no official index with that name, but it is the one your gut is actually tracking.
Why your personal inflation is higher
Here is the heart of it. Every one of those headline numbers describes an average household. You are not average. Nobody is.
The basket assumes a typical split of spending across hundreds of categories. But your spending has its own shape. If you are 22 and renting, you might be spending 40 per cent of your income on rent, a big chunk on food and transport, and almost nothing on the things that happen to be getting cheaper. The official basket smooths all of that into one tidy figure. Your life does not.
Look at what was actually moving in 2026. Average private rents rose 3.3 per cent in the year to May, and in the North East they were up 5.9 per cent. Transport costs were pushing the headline up. Meanwhile some of the things dragging the average down were items a cash-strapped renter barely buys. So if your money goes mostly on rent, energy and the weekly shop, your personal inflation rate can run well above the 2.8 per cent on the news, while a homeowner who paid off their mortgage years ago feels almost nothing. Same country, same month, two completely different experiences of “inflation”.
The writer Simon Damant put it well in a 2026 essay on this exact gap: “People are using the same word to describe different lives… Each is carrying a different basket of costs. Each can be telling the truth at the same time.” That is the bit one headline cannot hold.
So when you feel like your cost of living is rising faster than the official rate, the explanation is not that the statistics are rigged. It is that the statistics describe a household that is not you, and your basket is weighted towards the things that are climbing fastest.
Why any of this should change what you do
Three practical reasons this is worth understanding rather than just nodding along to.
A pay rise is not always a pay rise. If your salary goes up 3 per cent and your personal inflation is running at 5, you have taken a real-terms pay cut while feeling like you got a rise. Knowing your own number tells you what to actually push for when you negotiate.
Cash in a savings account is quietly losing. If your easy-access account pays less than inflation, your money is shrinking in real terms even as the balance stays the same. This is one of the best reasons to learn the difference between saving and investing, which we cover elsewhere on the site.
The number that matters is yours, not the newsreader’s. The headline is a national average designed for setting interest rates. It was never meant to describe your life. Once you know your own spending shape, you can stop arguing with the telly and start planning around the figure that actually applies to you.
Work out your own inflation rate
This is exactly why we built the personal inflation calculator that goes with this article. Put in roughly how your spending splits across rent, food, energy, transport and the rest, and it will weight the latest category figures your way instead of the average way. Most people who try it find their personal rate sits a fair bit above the headline. Now you will know by how much, and why.
👉 Try the Money Sorted Personal Inflation Calculator
Read next: Why inflation is so hard to fix — the three causes of inflation, and why interest rates only fix one of them.
This article is part of the Money Sorted series on moneysorted.money. For more on protecting your money from inflation, explore our guides on ISAs, saving versus investing, and building a budget that survives contact with real life.
Figures: ONS Consumer Price Inflation, UK (May 2026) and Private Rent and House Prices, UK (June 2026). Literacy data: The Richmond Project / Public First, 2026.