Hi, I'm Mrs. Wheelhouse, and welcome to today's lesson, which is from our unit of lessons on financial maths education.

I'm really looking forward to exploring some of the ways that we use maths in order to help out with our personal finances.

So let's get started.

By the end of today's lesson, you'll be able to understand the impact of inflation.

Now we're going be using that word a lot today.

Inflation is the term used to describe rising prices.

How quickly prices go up is called the rate of inflation.

There are two parts to our lesson today, and we're going to begin by considering the shopping basket.

Prices have changed over the years.

What do you think the price of a loaf of bread was in 2020? To help you out, I've put the price of bread in 1990.

So, pause the video and have a quick discussion now.

Welcome back.

What did you put? Well, I'll reveal to you that the answer is one pound and seven pence.

Was your answer higher or lower? Are you surprised by this? Let's consider what sort of increase that is.

Well, the price has risen by 114%.

Wow! It's a big jump.

Inflation is the term used to describe rising prices.

How quickly prices go up is called the rate of inflation.

Now we know the rate of inflation because every month, the ONS, the Office for National Statistics, calculates this.

And they do this by considering a shopping basket.

Hmm.

So each month, the ONS checks the prices of over 700 items that people regularly buy.

Now items include, but are not limited to, a loaf of bread.

Broccoli.

Bananas.

Clothes.

A toaster.

Tin of beans.

Household bills.

A mobile phone.

A haircut.

A car.

Don't know about you but I'm not really sure I regularly buy cars! But it's one of the things that we use to check.

Now the price of that basket gives the overall price level, and this is known as the Consumer Price Index, or CPI for short.

This is compared to what the CPI was one year ago.

The change in the price level over the year is the rate of inflation.

So in other words, of those roughly 700 items, we compare the total cost of them today based on what it cost us to buy them a year ago.

And that change is the rate of inflation.

So let's do a quick check.

Inflation is the term used to describe rising prices, the CPI, or the shopping basket? Pause the video and make your choice now.

Welcome back.

You should have said it's the term used to describe rising prices.

Now the rate of inflation is calculated every month by the CPI, the DfE, or the ONS? Pause the video and make your choice now.

Welcome back.

You should have said that the rate of inflation is calculated every month by the ONS, or the Office for National Statistics.

Alex says, "When inflation comes down, prices will decrease." Do you think Alex is correct? Think carefully about our definition for inflation.

Pause the video and have a discussion now.

Welcome back.

What did you say? Well, Alex is not correct.

A decrease in the inflation rate means that prices are now rising more slowly.

So for example, if the rate of inflation dropped from 3.

2% to 3%, this does not mean that items are now cheaper than they were the previous month.

It means that the items in this month's basket cost 3% more than in the same month last year.

Let's do a quick check on that.

A drop in inflation means that prices are now rising more slowly.

Is that true or false? And don't forget to justify your answer.

Welcome back.

You should, of course, have said that's true.

Remember, it does not necessarily mean that prices will also fall.

It's time now for your first task.

For question one, calculate the percentage change to the nearest percent for each of these items. Pause the video while you work on this now.

Question two.

The government sets the Bank of England an inflation target of 2%.

Use this target to predict the cost of items for the following year.

Pause the video and do this now.

Welcome back.

Question three.

Between March and April, inflation decreased by 1.

5%.

Sam says, "Oh good, that means my shopping will be 1.

5% cheaper this month." Explain why Sam may not be correct.

Pause the video and work this out now.

It's now time to go through our answers.

On the screen for question one, you can see the percentage change to the nearest percent for each item.

So, for the car, there's a 93% increase.

Clothing is a 6% decrease.

The kilo of bananas is a 32% decrease.

The mobile phone is an 11% increase.

And the pint of milk is a 68% increase.

Well done if you got those all right.

Question two.

If we inflate the prices by 2%, what will they become? Well, for the car, we have 35,700 pounds.

The clothing becomes 17 pounds and three pence.

The kilo of bananas becomes one pound 93 pence.

The mobile phone becomes 636 pounds and 86 pence.

And the pint of milk becomes 66 pence.

Well done if you got those all right.

Remember, these future prices, they're all money, so you might needed to have rounded, but you need to keep it appropriate.

Question three.

Why Sam may not be correct.

Well, a decrease in the inflation rate means that prices are now rising more slowly.

If the rate of inflation decreased, it does not mean that items are now cheaper than they were the previous month.

It is referencing the percentage change between this month and the same month last year.

Well done if you got that all right.

It's now time for the second part of our lesson where we're going to look at pay in relation to inflation.

The government set the Bank of England an inflation target of 2%.

Why do you think this is? Pause the video and have a quick discussion now.

Welcome back.

What did you come up with? Well, you may have said something like this.

A stable inflation rate helps everyone plan for the future, such as knowing how much to save.

Why might high inflation cause a problem, do you think? Pause the video and have a quick discussion now.

So what did you say? Well, you may have said something like this.

If inflation is too high or it varies too much, it's hard for businesses to set the right prices and people cannot afford what they thought they could.

Now, high inflation is clearly bad, but what about low or even negative inflation? Why might that cause a problem? Pause the video and have a discussion now.

Welcome back.

Maybe you put something like this.

If inflation is too low or negative, then some people may put off spending because they expect prices to fall.

Although lower prices sound like a good thing, if everybody reduced their spending, then companies could fail and people might lose their jobs.

Quick check now.

True or false? Inflation can affect whether people spend money.

Is that true or false? And don't forget to justify your answer.

Pause the video and do this now.

Welcome back.

You should have said that's true.

Remember, if prices are unpredictable, then it is difficult for people to plan how much they can spend, save, or invest.

Izzy says, "If I store my money at home, does that mean I am protected from inflation?" Sofia replies, "Actually the opposite.

The money you store at home is not receiving any interest, so the amount doesn't change, but what you can afford with your money will change." Let's have a look at what that means.

So it is the year 2000 and Izzy has one pound to spend in her local shop.

A Freddo chocolate bar costs 10 pence.

How many of these chocolate bars can Izzy buy? Oh, this is quite a simple calculation.

I've got a pound.

That's 100 pence.

Each Freddo chocolate bar costs 10 pence, so I can buy 10 of them.

Brilliant.

Now Izzy decides not to do this and she keeps her one pound at home.

It is now the year 2020.

So Izzy takes her one pound to spend in her local shop.

A Freddo chocolate bar now costs 27 pence.

How many can she buy? Pause the video and work this out now.

Welcome back.

Well, you should have said that she can buy three chocolate bars now.

"What!" says Izzy.

"So one pound today gets me less than it used to?" "Yes," said Sophia, "that is the effect of inflation.

By putting your money somewhere it can earn interest, it can help with the impact of inflation." Now people become unhappy when the rate of increase of their pay does not keep up with the rate of inflation.

This can lead to strikes or people refusing to work in certain areas.

For others, it means changing their spending habits so they can still afford the basic necessities.

It's time for our final task, and we're going to do a case study here.

It is 2020 and a worker is paid eight pounds and 72 pence per hour.

In 2024, the same worker is now paid 11 pounds and 44 pence per hour.

The worker claims they are paid less now than they used to be.

Is this claim correct? Now you can use the table that's going to follow to justify your answer.

So what I've got here is a list of some items on what they cost in 2020 versus what they cost in 2024.

You may want to do some calculations here in order to say whether or not you can support the worker's claim that they are paid less now than they used to be.

Pause the video now while you work on this.

Welcome back.

So, let's see if you think the claim of the worker is correct or not.

So what you've got here, remember, is just an example of the way I've approached this.

You may have approached this a different way and your answer is still equally valid.

The first thing I did is looked at the worker's pay.

The worker has seen their pay increase by 31.

2%.

So I'm going to compare this to how much the prices of everyday household goods have increased.

So, for each item, I calculated the change to one decimal place in terms of percentage.

So a pint of milk has seen the price increase by 51.

2%.

The loaf of white, sliced bread has increased by 33.

3%.

A dozen large, free-range eggs has increased by 45%.

Self-raising flour has increased by 18.

6%.

The block of butter has increased by 16.

2%.

And the tub of spreadable butter has decreased by 4%.

So this is how I've used those figures.

The worker has seen their pay increase by 31.

2%.

I'm going to compare it now to the prices of everyday household goods.

Well, the prices of milk, bread, and eggs have all seen an increase greater than 31.

2%.

However, the prices for flour and butter have not increased by that much, and spreadable butter has even seen a reduction.

So I'm going to argue that it's not possible to say if the worker is paid relatively less based on the information we were given in the table.

So we would need to look at the cost of more items to be sure.

Remember that shopping basket? So what we could do is we could consider even more items. Remember, our shopping basket contained loads.

So more information would be really helpful here.

Well done if you said something similar.

You could, of course, have argued that their pay has or hasn't, depending on what you focused on.

It's now time to sum up what we've looked at today.

Inflation affects the respective cost of various goods.

Rates of inflation vary for different goods.

And pay may not increase at the rate of inflation.

Well done, you've worked really well today, handling a fairly tricky concept like inflation.

I look forward to seeing you for more lessons in the future.

Goodbye for now.