Saving still tough but inflation falls againUK CPI measure of inflation down to 4.2%

18 January 2012

Petrol prices

Lower petrol prices contributed to inflation fall

The UK consumer price index fell to 4.2% in December 2011, the largest fall in annual inflation for three years and a promising start to the new year for cash-strapped households.

Lower petrol, gas and clothing prices contributed most to the fall in CPI, which had stood at 4.8% for November

According to the Office for National Statistics the only sector to experience rising prices was telecommunications, with both landlines and mobiles seeing an increase.

It is hoped that further cuts to inflation in the coming months can stimulate growth in the UK economy and also make beating inflation more realistic for savers.

RPI also falls

The retail price index, which includes mortgage interest payments, also came down significantly in December, from 5.2% to 4.8%.

The price of petrol fell by 1.1 pence per litre between November and December, having risen by 3.2% in the same period a year earlier.

Despite recent frustration at further rail fare increases, transport prices overall rose by 2.2% between November and December, far less than the 3.6% a year earlier.

Another influence on falling inflation was price cuts on the high street as retailers responded to a period of reduced consumer spending.

Savers still struggling to gain

CPI is now at the same level as it was in June 2011 and the last time it was lower was last March when it was 4%.

The forecast suggests further falls to come, especially as last January’s VAT rise drop out of inflation figures from February 2012 onwards.

It remains difficult for savers to beat inflation, however, as basic-rate tax payers would need to be earning 5.25% interest to beat CPI, as returns would be taxed at 20%. Higher-rate taxpayers would need an account paying 7% to be making interest that negates inflation.

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