Inflation rose to 1.8% in the year to January, up from 1.6% in the year to December – it’s the highest Consumer Prices Index (CPI) rate of inflation since June 2014.
According to the Office for National Statistics (ONS), the main reason for the increase in inflation is rising petrol and diesel prices, and to a lesser extent food prices.
These were, however, offset by clothing and footwear prices falling.
Analysts now expect inflation to rise above and beyond the Bank of England’s 2% target during 2017.
Tom Stevenson, investment director for Personal Investing at Fidelity International, said: “With Britain seemingly heading for a hard Brexit, it’s likely we will see the pound continue to wobble over the next two years, resulting in higher inflation in the short term. Indeed, price rises are expected to reach 2.8% by the end of the year.”
The problem with rising inflation is that it erodes the real term value of savings, and with cash interest rates so low, savers may want to consider investing in order to beat rising inflation.
Mr Stevenson adds: “For anyone who is unsure about the benefits of investing in the stock market over stashing cash under the mattress, our calculations show if you had invested £15,000 into the FTSE All Share index 20 years ago you would now be left with £52,965.
“If, however, you had invested £15,000 into the average UK savings account over the same period, you would be left with a paltry £19,916. That’s a difference of £33,049 – too big for any investor to ignore.”
The Retail Prices Index (RPI) rate of inflation, which unlike CPI includes certain housing related costs, rose to 2.6% in the 12 months to January – up from 2.5% in December.