What inflation, shrinkflation and skimpflation mean for shoppers

I spent a big chunk of my week recently talking on TV and radio about the unexpectedly high rise in the rate of inflation, which hit 3.8% in July.

- MARTYN JAMES

Inflation has a direct impact on the value of money and the cost of things that we spend it on. But because it's complicated, lots of people tell me they feel a bit lost when the new figures are announced and don't know what they mean in real terms.

Ultimately, inflation is just a way to measure what things cost. What really matters is what you can or can't afford. But are businesses using inflation to increase prices unfairly?

What is inflation and why does it matter?

Inflation is a way to measure how much the cost of goods and services have changed over time, usually compared to the same period a year ago.

If prices have gone up but the amount of money you earn has not, or hasn't increased as much, then you have less money to spend that you did last year.

If you have money in a savings account, interest should be paid in line with the Bank of England's base rate, so the overall amount you have increases. But if you keep your money in a shoe box under the bed, it's not increasing in line with inflation so it buys you less, because there's less of it.