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Inflation is a measure of rising prices. It's useful to know how much good are rising in prices for many reasons. Some pay deals and pensions are linked to inflation - so salaries increase while food and other goods in the shops rise in price. It's also good to have an idea about whether prices will be going up in the coming months.

In the UK there are two main measures of inflation from the Office of National Statistics: the Consumer Price Index (CPI) and the Retail Price Index (RPI). Both are calculated by statisticians heading to shops and going online to check the price of air tickets, knickers, sofas, eggs and much more around the UK.

In the papers when the talk about inflation going up, it is usually CPI they are referring to. CPI is primarily an economic measure and it is the Bank of England's job to keep it at two per cent. If it rises, then the bank could be forced to increase interest rates to bring it down. This is where inflation becomes important to the man on the street. If the headlines say inflation is up, then it's likely that the cost of a loan or a mortgage is going to go up.

The idea is that when interest rates go up, it is more expensive to borrow and saving becomes more attractive. Therefore, there will be fewer shoppers on the high street, less demand for goods and the prices will not be pushed up so dramatically.

High inflation also affects investments. For example, if you put £100 in the bank at an interest rate of five per cent, after a year you'll have £105. However, if inflation is at five per cent then the purchasing power of that £105 would be the same as £100 a year a go. The reason is that in that year the cost of goods has risen by as much as the investment.

If investments are not really earning cash, then the pressures would be on the Bank of England and the government to sort it out and big investors who count their small change in the millions would be looking to other countries to make a buck.

Knowing the difference between CPI and RPI is also important. Often pay deals or pension may come with promises to match inflation. Generally RPI is higher than CPI so a pay deal for one per cent over RPI would be substantially better than one linked to CPI.

Also with pensions the promise to match rising prices may not be so great. Although a weekly pension tied to CPI would mean a pensioner could buy the same number of goods over the years, as wages generally rise faster than prices the rest of society would be much better off.