Economists feared rising fuel prices would push the figure back up after falling for two consecutive months, but 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 slightly from 6.8% in July 2023.
Here, Which? explains why the inflation rate has eased, and how it compares to the top-rate savings accounts and cash Isas. We also share our advice for tackling the rising cost of living.
Why has inflation fallen?
The Bank of England warned that we might see an uptick in the rate of inflation in August 2023, thanks to a rise in the price of petrol and diesel.
But despite the average price of petrol rising 5.3p per litre and the average price of diesel increasing by 5.9p per litre between July and August 2023, inflation slowed for the third month in a row.
The main trends pulling the rate of inflation down were falling food prices and an ease in the cost of hotels. Air fares also saw a surprise drop, with prices decreasing by 2.1% between July and August 2023 compared with a rise of 13.4% a year ago. The ONS says this is only the second time that fares have fallen between those two months since records began in 2001.
A sharp drop in the price of milk, cheese, and eggs between July and August was the biggest driver behind falling food prices. The cost of vegetables, as well as fresh, chilled and frozen fish and seafood, also eased.
Separate figures from Kantar also showed food inflation had dropped to 12.2% - its lowest level in over 12 months for the four weeks to 3 September 2023. But that will be cold comfort to households that are struggling with their food bills.
Which? research found that consumers are as worried about food prices as they are about energy costs and that trust in supermarkets has fallen to its lowest level in more than a decade.
The graph shows how inflation has changed since August 2020:
Can any savings rates beat CPI inflation?
The closer your savings interest is to the rate of inflation, the less value your cash will lose over time. That's why you should ensure that your money is getting the best interest rate possible – even when savings account rates are comparatively low.
This table shows the top rates for fixed-term and instant-access cash Isas and savings accounts, ordered by term.
No rate can beat or even match today's inflation figure, but interest on savings is currently at its highest level for 15 years.
Moneyfacts data shows that the average rate offered on an easy-access account, for example, was more than 3% AER earlier this month. While savers willing to lock their money into cash Isas or bonds lasting for a year or more can take advantage of average rates above 5%.
If the Bank of England decides to hike the base rate again when it meets on Thursday (21 September), that could help push interest on savings higher. But Rachel Springall, finance expert at Moneyfacts, urges people not to wait before opening an account.
'Inflation is still eroding savers’ cash in real terms, so it’s imperative they take time to ensure their account is offering a competitive return on their investment,' she says. 'If savers want to spread their cash across a flexible account and a fixed bond, then this will allow them to take advantage of higher returns but also retain access to a proportion of their cash in an emergency.
'However, depending on demand, some market-leading accounts could be pulled from sale, so quickness is key.'
Find out more:How to cut costs when prices are still high
The decrease in inflation doesn't mean prices are falling; it just means they're rising at a slower rate than before.
If you're struggling, we have lots of advice to help you cut costs:
source https://www.which.co.uk/news/article/inflation-sees-surprise-fall-to-6.7-but-will-savings-rates-keep-rising-aGHJR5p4dPjX