Inflation falls again to 3.4%
The rate of inflation fell to 3.4% in February, the lowest it has been since November 2010, according to the Office for National Statistics.
The consumer prices index (CPI) measure of inflation in the UK dropped to 3.4%, from 3.6% in January, while the retail prices index (RPI), which includes mortgage interest payments, also fell to 3.7% from 3.9%.
The main reason for the falling rate is because of discounts offered by retailers within the domestic electricity and gas, recreation and culture, and transport sectors.
But higher costs of alcohol and vegetables stopped the rate declining faster.
This is the fifth month in a row that inflation has fallen and the news will be welcomed by savers as there is now a choice of 79 accounts on the market that will negate the effects of tax and inflation.
"Logic says that the rise must be easing some of the misery savers have suffered due to a combination of high inflation and the low savings interest rates over the past three years," says Sylvia Waycot, spokesperson for Moneyfacts.
"Today's rate of inflation means hundreds of thousands of savers need an account paying a hefty 4.25% before they earn a real rate of return on their savings and yet the average no-notice savings account only pays a paltry 0.98%, which shows the size of the problem," she adds.
Replaced as the official measure of inflation by the consumer prices index (CPI) in December 2003. Both the Retail Price Index and CPI are attempts to estimate inflation in the UK, but they come up with different values because there are slight differences in what goods and services they cover, and how they are calculated. Unlike the CPI, the RPI includes a measure of housing costs, such as mortgage interest payments, council tax, house depreciation and buildings insurance, so changes in the interest rates affect the RPI. If interest rates are cut, it will reduce mortgage interest payments, so the RPI will fall but not the CPI. The RPI is sometimes referred to as the “headline” rate of inflation and the CPI as the “underlying” rate.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
The Consumer Price Index is the official measure of inflation adopted by the government to set its target. When commentators refer to changes in inflation, they’re actually referring to the CPI. In the June 2010 Budget, Chancellor announced the government’s intention to also use the CPI for the price indexation of benefits, tax credits and public sector pensions from April 2011. (See also Retail Prices Index).