UK inflation impact on real returns is calculated as real return = (1 + nominal) ÷ (1 + inflation) − 1. The Bank of England targets 2% CPI inflation; 2022-23 peaked at 11.1%. The ONS publishes CPI monthly; CPIH (CPI including owner-occupier housing costs) is the ONS's preferred measure.

UK inflation between 2022 and 2024 was the most severe real-purchasing-power shock in 40 years. CPI peaked at 11.1% in October 2022, and even savers locked into 5%+ best-buy fixed-rate bonds lost 5-6% of purchasing power in a single year. This calculator models the inflation impact on cash, equity returns, and real-life cost-of-living items so you can see what your money is actually doing in real terms.

How UK inflation is measured:

• CPI (Consumer Prices Index): the headline rate, published monthly by the ONS. Used for the BoE's 2% target, state pension triple lock, and most benefits uprating. Tracks ~720 representative items.
• CPIH: CPI plus owner-occupier housing costs. The ONS's preferred headline measure, generally less volatile than CPI.
• RPI (Retail Prices Index): legacy measure, used for index-linked gilts, rail fares, and some commercial contracts. Now considered statistically flawed by the UK Statistics Authority but persistent in legal contracts.
• Personal inflation rate: ONS publishes a personal inflation calculator weighting basket items to your actual spending pattern — useful because if you own your home outright and don't drive, your personal rate may have been 3-4 percentage points below the 11% peak.

The real-return formula:

Real return = (1 + nominal return) ÷ (1 + inflation rate) − 1

For small percentages this approximates to (nominal − inflation), but at high inflation rates the compounded formula matters meaningfully.

Worked example (2022-23): - Best-buy 1-year fixed-rate bond: 5.5% - CPI inflation: 11.1% - Real return: (1.055 ÷ 1.111) − 1 = −5.0%

A saver in 5.5% nominal bonds lost 5% of real purchasing power in twelve months. Over a 30-year horizon, that single year reduces terminal real wealth materially.

Inflation-hedging assets: - UK equities (FTSE All-Share): typically positive real return over 10-year windows, vulnerable in single-year shocks - Index-linked gilts: contractually linked to RPI/CPI, with a real-yield component - Property: historically inflation-correlated, but real return depends heavily on entry yield - Cash: nearly always negative real return when inflation exceeds 3%

The calculator outputs cumulative real and nominal returns over 1-40 years, stress-tests against alternative CPI paths, and runs a basic Monte Carlo on inflation-and-return outcomes. For underlying data, the ONS Consumer Price Inflation release and the Bank of England's Monetary Policy Report are the authoritative references.