Its quite simply a rise in general level of prices of goods and services over time. Although the way the BAE calculate it, it only includes certain things, which they use conveniently to paint a rosy picture which they find suits them.

It uses a "basket" of goods, and they work out the price difference month by month, from this they get a % increase. Its called the Retail Price Index (RPI) I believe.

Without doubt if fuel, food, taxes etc, and not ipods, clothes etc were measured, itd be a damn sight higher than the way they see it.

Rising inflation can prompt workerd to demand higher wages, to keep up with consumer prices. Rising wages in turn can help fuel inflation.