Inflation rises

Posted on April 21st, 2010 | Categories - Financial News, Savings

In a reversal of last month’s figures new figures show that UK inflation rose significantly last month.

CPI (Consumer Price Index) rose from 3% in February to 3.4% in March, RPI (Retail Price Index), which includes housing costs rose by even more from 3.7% to 4.4%.

The rise in both measures was put down to the continuing effects of the VAT increase early in the New Year; however recent rises in petrol prices probably had a more significant effect. The ONS (Office of National Statistics) who compile the inflation figures also said increasing air fares, especially on European flights, rising food and non-alcoholic drinks prices, and higher clothing and footwear costs also played a part.

Despite the rise many experts still believe inflation will fall later in the year as slow economic growth and low job security impact on high street spending and therefore inflation rates.

However a prolonged period of inflation may force the Bank of England to raise interest rates, which in turn would have a knock on effect to UK businesses and the wider economy.

Thoughts of inflation possibly falling later in the year though will offer little consolation for savers who are seeing the real value of their savings eroded by a combination of low interest rates and relatively high inflation. There are now very few accounts paying a gross interest rate in excess of RPI, and remember tax will also be deducted from interest paid.

For savers looking for a real return National Savings & Investments Index Linked Certificates now look even better value as they guarantee to pay a real rate of return of at least 1% above inflation.

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