With the latest inflation figures showing RPI at 5.6% pa and CPI (the governments preferred measure) sitting at 5.2% pa it easy to be startled by the headlines – inflation is currently high and well above the Bank of England’s target of 2.0%.

The issue of whether the Bank of England can actually control inflation that is a result of global commodity price increases is a separate issue.  For me the interpretation of the inflation figures is more important.

September’s CPI figure is 5.2% pa.  But what does that actually mean?

It means that in the 12 months ending in September 2011 the cost of the items in the basket of goods (used to measure inflation) increased on average by 5.2%.  Put another way, if a basket of goods cost £100 in September 2010 the same basket of goods actually cost £105.20 in September 2011.  A fact we do not know until October 2011 – it is a historical measure.

The headlines scream CPI at 5.2% and the cost of goods is rising.  This doesn’t mean the cost of goods will increase by 5.2% it simply states that the cost has already risen by 5.2% in the last 12 months. If you’ve been keeping an eye on your receipts over past year or so this will not be breaking news.

The inflation figures just record the price rises which have already happened, they are not a prediction of the future. With inflation so high these figures are a statement of the bleeding obvious!

However they do have a use.  They are used to increase a number of state and other pensions.  But don’t start popping the champagne yet.

Although an increase of CPI applied to the basic state pensions (5.2%) is a sizable rise it is important to put it in context as the increase will not be applied to state pensions until the following April.

So inflation is recorded as 5.2% between September 2010 and September 2011. But this increase won’t be passed onto pensioners (by way of increased basic state pension) until April 2012. They will have already been purchasing goods and services at the higher prices long before their basic state pensions catches up.

And what about the basket of goods used for the calculations? The inflation figure is only relevant to you if you purchase the same goods in the basket in exactly the same proportions.  What if you don’t buy nappies or petrol or flat screen TVs?  Your personal rate of inflation may well be different.

So when you look at the headlines it’s important to maintain a bit of perspective.