Economists widely predicted the Consumer Prices Index (CPI) measure of inflation, which tracks the cost of an imaginary 'shopping basket' of around 700 popular goods and services, would fall to 8.5% in the year to May.
Here, Which? explains why the inflation rate hasn't moved, 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 is inflation unchanged?
The rate of inflation refused to budge in May, with the ONS pointing the finger of blame at the rising price of air travel, second-hand cars, and recreational and cultural goods and services.
Air fares rose by 20% between April and May this year, compared with a smaller rise of 2.8% between the same two months a year ago. Travel to European destinations contributed the most to price rises. The timing of Easter this year could also partly explain the increase, with figures for the holiday period included in May's calculation.
Prices for recreational items such as tickets to live music events and computer games also rose overall by 6.8%, up from 6.4% in April - the highest rate since August 1991. While second-hand car prices rose by 0.9% in May 2023, compared with a fall of 1.7% a year ago.
These price hikes were offset by falls in the price of petrol, and food prices rising not quite so quickly as they have been. The cost of food and non-alcoholic drinks rose by 18.4% in May 2023, down from 19.1% in April and from March when the rate hit a 45-year high of 19.2%.
Separate figures from market analysts Kantar also shows grocery inflation dropped to 16.5% for the four weeks to 11 June, down from last month’s 17.2%.
Despite the fall, it remains at its sixth highest level since 2008 and the soaring price of food on supermarket shelves means the cost of some popular family meals has skyrocketed, according to Which? research.
The graph below shows how inflation has changed since August 2020:
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 – hitting a rock bottom figure of 0.2% in August 2020 due to the pandemic’s impact.
Even when there is a decrease in the inflation figure, it doesn't mean prices will fall as well – it merely shows they're rising more slowly.
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.
Sadly, no savings rates can beat or even match inflation. Although this shouldn't come as too much of a shock.
Moneyfacts analysis shows even before inflation shot through the roof into double figures, providers have failed to offer high enough rates. Figures show that as far back as June 2021, there were still no deals that could touch the CPI inflation rate of 2.1%.
There have been substantial rises to savings rates over the last few weeks, however, with the top-rate for a one-year fixed now hitting a whopping 5.7% - more than double the equivalent top deal this time a year ago.
With the Bank of England expected to up the base rate again tomorrow (22 June), we could see interest on savings accounts rise further.
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 – 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 May 2022 and bought them all again the same month in 2023, you could expect your shop this year to be 8.7% 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
Avoiding school holidays is a given, but the airport you fly from could also determine the price you pay. Flexibility in when you fly and avoiding costly extras are also key to keeping prices down.
Get further help with the cost of living
source https://www.which.co.uk/news/article/inflation-remains-at-8.7-are-savings-rates-catching-up-yet-aVBI74Y4KNlZ