Surprise dip in inflation

Posted on May 21st, 2013 | Categories - News

Inflation blogAccording to the Office of National Statistics (ONS), there has been a slight dip in the rate of inflation.

The Consumer Prices Index (CPI) has fallen from 2.8% in March to 2.4% in April. The Retail Prices Index (RPI) has also fallen significantly to 2.9%, down from 3.3% in March.

One of the main reasons for the slowdown in the rate of inflation was a fall in the cost of fuel. Over the past month petrol has fallen by 2.1p per litre, whilst the price of diesel has decreased further, by 3.9p.

The rate of inflation would have slowed even further, had it not been for the recent snap of cold weather, which caused crop yields to suffer, leading to a rise in food prices, as further pressure is put on limited stocks.

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Most people will see the fall in the rate of inflation as positive news.

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For those people on fixed incomes, it means their buying power will be eroded more slowly, whilst savers should find it easier to get a real return on their savings.

At present a basic rate tax-payer would need to achieve a gross interest rate 3% to beat the current level of inflation. The only savings account which provides such a rate is offered by the Bank of London & the Middle East. However, many savers will be put off by the high minimum deposit of £500,000 and the need to tie up their savings in a five year fixed rate bond.

Despite the dip in the rate of inflation there are still no savings accounts which will allow higher rate taxpayers to beat inflation.

Above target inflation

Whilst the slowdown in the rate of inflation will be welcomed by many people, experts have warned against complacency as the rate of inflation is still running in excess of the Bank of England’s 2% target and has done for over three years. Indeed prices have risen by 17% over the past five years and 30% over the past decade.

Simon Rose of Save Our Savers said: “Inflation is a tax in all but name, stealthily taking money from our pockets with the connivance of the government. The Bank of England has consistently failed to keep it under control and admitting it will be above target for another two years, it risks losing any credibility it has left. In the meantime, hard-pressed British families and pensioners will find it ever harder to pay for the essentials of life.”

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