IFS Zooms In: The Economy Did inflation cause the cost of living crisis?
Feb 6, 2026
Peter Levell, IFS inflation analyst, explains how inflation is measured and who loses out. David Miles, former Bank of England MPC member, outlines why central banks aim for 2% and the trade-offs of rate hikes. They discuss recent shocks that pushed prices up, unequal impacts across households, and the risks that could push inflation back up.
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Inflation Is An Average Rate
- Inflation measures the average rise in prices across many goods and services, not the price of any single item.
- Peter Levell explains that a 3.4% CPI means on average prices are 3.4% higher than a year ago.
Bread And Beer: A 200-Year Price Test
- David Miles quizzes Peter Levell about historical prices, revealing bread cost about 1p in 1826 versus ~£1.50 today.
- They use bread and beer to illustrate how prices rose hundreds-fold over 200 years.
Why A Small Positive Target Works
- Central banks target ~2% because measured prices understate quality improvements and avoid deflation risks.
- David Miles argues small positive inflation partly offsets upward quality-adjustment measurement errors.