The Consumer Prices Index (CPI) measure of inflation, which tracks the cost of an imaginary 'shopping basket' of around 700 popular goods and services, is down from 10.1% in January 2023. After inflation fell for three months in a row, economists had forecast a drop to 9.9% last month, so today's increase is a surprise.
The figures are also likely to impact the Bank of England's next base rate decision, which is due to be announced tomorrow. If it rises again, it will be the 11th time in a row since December 2021.
Here, Which? explains why the inflation rate has risen, and how it compares to the top-rate savings accounts and cash Isas. We also share tips for tackling the rising cost of living.
Why has inflation risen again?
Inflation was also kept high by the rising price of restaurant meals and the cost of clothes. Prices of clothing and footwear rose by 8% overall in the year to February 2023, up from the 6.2% rise in January 2023.
According to the ONS, clothing prices usually rise between January and February as new stock starts to enter the shops following the New Year sales period, but last month's rise is the largest seen between January and February since 2012.
This month's inflation figure rise was partially offset by the falling price of recreational and cultural goods and services - such as games and toys - and motor fuels.
The graph below shows how inflation has changed since January 2019:
The Bank of England’s target is to keep inflation as close to 2% as it can. But it hasn’t been that low since July 2021. Before that, inflation was very low. It was below 2% from August 2019 to April 2021, falling to a low of 0.2% in August 2020 due to the pandemic’s impact.
And remember, a decrease in the inflation figure doesn't mean mean prices will fall as well – it merely shows they are rising at a slightly slower rate.
Can any savings rates beat CPI inflation?
This table shows the top rates for fixed-term and instant-access cash Isas and savings accounts, ordered by term.
As you can see, none of the top-rate savings accounts are currently able to keep up with inflation.
However, rates are well above where they were this time last year, when the top five-year fixed term account offered 2.3% AER - half of today's best rate - and the best one-year fixed gave just 1.71% interest. Rates for other types of product were similarly low, with the top rate for an instant-access account more than three times higher now than 12 months ago.
Find out more:How does CPI inflation affect your savings?
CPI inflation is the speed at which the prices of the goods and services bought by households rise or fall. It tracks the costs of a shopping basket of around 700 popular goods and services bought by households – from tinned tomatoes to train journeys.
The figure – which is provided by the ONS each month — shows how much prices have changed compared with the same month of the previous year. For example, if you'd bought all the same items in the basket in February 2022 and bought them all again the same month in 2023, you could expect your shop this year would be 10.4% more expensive.
When you keep money in your bank, you'll likely be earning interest, which should balance out the effects of inflation. If your cash isn't growing in interest at the same rate of inflation or more, it will effectively lose value because you'll be able to buy less with it. That's why you should ensure that your money is making the best return possible – even when savings rates are low.
Find out more:How to cut costs when prices are still high
With the price of food and non-alcoholic drinks driving inflation back up, cutting the cost of grocery bills continues to be a top priority. Thankfully we have tons of helpful advice to ease the squeeze on your supermarket shop.
Get further help with the cost of living
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