CPI up for first time in six months
The main reason for the rise was the increase in the prices of food, clothing, recreation and culture. Falling prices of electricity, gas and transport kept the rate from rising further.
The retail prices index (RPI), which includes mortgage interest payments, fell slightly to 3.6% from 3.7%. This is its lowest rate since December 2009 and falling prices of fuel, electricity and motoring costs were the main reasons for the fall.
To beat inflation, a basic-rate taxpayer needs to find a savings account paying at least 4.38%, while a higher-rate taxpayer needs an account of at least 5.83%.
This is the first time in six months that the consumer prices measure of inflation has risen but there is still a range of 50 savings accounts on the market that negate the effects of tax and inflation – up from 25 a year ago.
"CPI is on the rise again, and savers all over the country must be heaving one big sigh of frustration," says Sylvia Waycot, spokesperson for Moneyfacts.
"Today's rate of inflation means hundreds of thousands of savers need an account paying a hefty 4.38% before they earn a real rate of return on their savings. Yet the average no-notice savings account only pays a paltry 1.05%, showing the size of the problem many still face," 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).