Why the inflation basket is changing, and what this means for your financial plan

After a prolonged period of rising prices, inflation appears to have eased from the highs seen during the Covid-19 pandemic. 

At its peak, the Office for National Statistics (ONS) reports that the Consumer Prices Index (CPI) reached 11.1% in October 2022. 

Since then, it has gradually fallen back towards more moderate levels. 

However, inflation hasn’t disappeared entirely. In fact, according to the BBC, the UK is forecast to have one of the highest inflation rates among G7 economies in the coming years, with inflation expected to average 3.2% in 2026 and 2.4% in 2027.

So, while the overall trend might appear more stable, rising prices could still play a role in your financial planning efforts.

While you may understand this, you might not know exactly where these figures come from and how they’re calculated.

The answer lies in the “basket” of goods and services used to track changes in the cost of living over time. 

Continue reading to find out how this inflation basket works, why it changed recently, and what this could mean for your finances.

The inflation basket is designed to reflect how people spend their money

The CPI basket is essentially a collection of over 700 goods and services that are intended to represent typical household spending in the UK.

These items are grouped into broad categories, including: 

• Food and non-alcoholic beverages

• Transport

• Housing and household services, such as energy bills

• Recreation and culture

• Clothing and footwear. 

Each item is assigned a weighting based on how much households typically spend on it. 

For instance, housing and energy typically carry a greater weighting than items such as entertainment, as they tend to make up a larger proportion of the average household budget. 

The ONS then tracks how the price of these items changes over time, combining this data into the single percentage figure you see reported each month. 

So, if inflation is recorded at 3%, this means that, on average, the price of goods and services in the basket has increased by 3% compared to the previous year.

The contents of the basket are changing to reflect modern spending habits

It’s vital to remember that the inflation basket isn’t fixed. Each year, the ONS reviews and updates its contents to ensure it reflects how people are actually spending their money.

Items that have become more popular are added, while those that aren’t widely purchased may be removed. 

According to the Financial Times, recent updates have included the addition of items such as:

• Non-alcoholic beer

• Pet grooming services

• Dashboard cameras

• Healthier foods, such as hummus. 

 At the same time, several items were removed, namely:

• Premium bottled lager in pubs and restaurants

• Some children’s clothes

• Standard light bulbs.

• 
  

This ensures that inflation remains a relevant measure of real-world price changes, rather than relying on outdated assumptions about consumer behaviour.

Changes to the basket can influence the figures you see

Since the basket is updated regularly, changes to its contents can affect the overall rate of inflation.

This is because inflation doesn’t just measure how prices change, but also what people buy and how much they spend in each category.

For instance, if households spend more on energy and food, which tend to be more volatile, inflation may appear higher. 

Conversely, if spending shifts towards goods with more stable prices, the overall figure may appear lower. 

This means that the headline inflation figure isn’t a fixed measure, but one that evolves with the economy.

You should also note that while the CPI provides a useful benchmark, it reflects the “average” household.

In reality, your own experience of inflation will depend on how you spend your money. 

Indeed, if a larger proportion of your income goes towards energy bills or fuel, you may feel the effects of rising prices more sharply. 

Or, if you focus more of your spending on discretionary items, your personal inflation rate may be lower. 

While this varies between households, the ONS does provide a helpful personal inflation calculator to help you determine your exact rate.

Your wealth typically needs to grow faster than inflation to maintain its real-terms value

Even though changes to the CPI basket might seem technical, they can have implications for your financial planning efforts. 

Inflation essentially affects the real-terms value of your wealth, or, in other words, what it can actually buy over time. 

If your money doesn’t grow at a pace that keeps up with inflation, its purchasing power will gradually fall. This means that even if the value of your investments or savings appears to be increasing, you could still be worse off in real terms.

For instance, if inflation is running at 3% a year and your savings are growing at just 1%, the real value of your money is effectively shrinking.

Over time, this can significantly impact your ability to maintain your standard of living, and it’s especially important for your long-term goals, such as retirement. 

Fidelity suggests that UK savers saw around £17.6 billion wiped off the real value of their cash savings in 2025 once inflation was accounted for. 

At the end of the year, inflation stood at 3.4%, while the average interest rate on easy access savings accounts was below 2%. As a result, many savers were essentially losing wealth in real terms.

In contrast, global equity markets delivered much stronger returns. 

The MSCI World Index rose by around 13% in 2025, showing the difference between holding cash and investing over the long term. 

Of course, it’s important to remember that returns are never guaranteed when you invest. 

However, investing could still give your money the potential to grow faster than prices rise, ultimately helping you achieve your long-term goals.

Get in touch

If you’d like to understand how inflation – and changes to how it’s measured – might affect your financial plan, we’re here to help.

Email info@athertonyork.co.uk or call us on 0208 882 2979 to find out more.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. 

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.