Inflation is the rate at which prices generally rise. Everything contentious about it follows from the word generally.
How it is measured
Statistical agencies define a basket of goods and services representing typical household spending, weighted by how much of the budget each takes. They price that basket repeatedly and report the change.
The weights matter enormously. Housing costs and food have large weights; things people buy rarely have small ones.
Why your rate differs
Because you are not the average household. If you rent in a city where rents rose sharply and you do not drive, your experience is dominated by housing and unaffected by fuel prices.
Someone with a fixed mortgage and a long commute has the opposite experience. Both are real, and the headline number is neither.
What causes it
Demand exceeding supply, which pushes prices up. Costs rising, particularly energy, which flows through everything. Money supply expansion. And expectations, which are self-fulfilling – if everyone expects prices to rise, wages and prices are set accordingly.
Actual episodes usually involve several at once, which is why economists argue about the mix afterwards.
Core inflation
The same measure excluding food and energy, which are volatile. Criticised because people eat and heat their homes.
The reason for it is that central banks are trying to identify the underlying trend rather than react to a temporary oil price move, and the volatile components obscure it.
What falling inflation means
Prices rising more slowly. Not falling. That distinction is the source of most public confusion about why the shopping bill has not come down.