Inflation figures released today by the Office for National Statistics (ONS) recorded no change in inflation growth levels.
The official statistic released today reflected a 2.4% rate of inflation as measured by the Consumer Price Index (CPI). The ONS’ preferred measure of inflation, CPIH, which also accounts for housing costs, was slightly lower at 2.3%, although this is an increase from 2.2% last month.
With wage growth slowing, down to 2.5%, pressure on consumers is mounting again as their earnings barely outstrip inflation.
Simon Longfellow, head of Stepstoinvesting.com, a step-by-step guide to investing from Janus Henderson, explains: “Despite inflation staying the same, it’s another month where it remains high. This, coupled with last month’s interest rate decision, means consumers will continue to see their money being eroded.
“Last year alone, UK savers saw the purchasing power of their money fall by £30.3 billion, as inflation far outstripped the interest earned on their cash. This is because people are opting to leave their money in cash savings, not appreciating that, in fact, their money may be losing value every day.”
‘Less pressure to raise rates’
Alistair Wilson, head of retail platform strategy at Zurich, explains why the Bank of England may now feel less pressured into raising rates: “UK inflation was lower than expected in May, and wage growth also slipped, making the case for an interest rate rise this summer even weaker. With inflation now within touching distance of the Bank of England’s 2% target, the Bank’s Monetary Policy Committee will be feeling less pressure to raise rates, and it may well now hold fire until later in the year.”
It is important to note, however, that, due to changes in the reporting dates of inflation (last reported on the 23 May), data on price rises of petrol may not have had time to feed through. As Moneywiser recently reported, petrol prices have skyrocketed in recent weeks but this has yet to reflect in inflation figures.
Mr Wilson adds: “Lower inflation isn’t a reason for Britain to relax. If anything, households should be using it as an opportunity to prepare themselves for when times are less rosy, looking beyond the normal saving options to make what little savings they can afford to put away, go that bit further. Whether this is through saving into their pension, or investing into a Stocks and Shares Isa, both can deliver bigger returns in the long run.”