Inflation falls again to 2.8%
This is the lowest level of inflation since November 2009 and the main reason is because of a fall in fuel and food prices.
The retail prices index (RPI), which includes mortgage interest payments, also dropped to 3.1% from 3.5% in April.
A basic-rate taxpayer now needs to find an account paying at least 3.5% to beat inflation, while a higher-rate taxpayer needs an account paying 4.7%.
To demonstrate how inflation has affected saver's cash, a sum of £10,000 five years ago would now have the spending power of £9,209.
Hardship to continue
There are now 210 standard savings accounts, out of 1,454, that negate the effects of inflation and tax - a rise from 159 accounts last month.
"Today's fall in CPI is to be welcomed, although the nation's savers will be slow to cheer as their hardship continues with little relief," says Sylvia Waycot, spokesperson for moneyfacts.co.uk.
She adds: "UK savers are not fat cats moaning because their huge investments aren't making enough; they are predominantly people who have saved all their lives to help supplement incomes when they retire. It is sad that this frugality now offers little to no reward."
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).