The rate of UK inflation went up slightly in July to 2.6%, following three consecutive months of falling prices, according to the Office for National Statistics.
The consumer price index (CPI), the standard measure for inflation showing how prices have changed over the last 12 months, stands at 2.6% for July, up from 2.4% in June.
Transport costs contributed heavily to the increase, up 1% from June, with air fares rising 21.7% on last month. Clothing and footwear prices also rose.
The retail price index, which includes mortgage interest payments, rose by 0.4% from June to July and now stands at 3.2%, again led by higher air fares and clothing, as well as the price of cars.
Inflation impacts savings accounts
Despite the monthly rise, inflation has been falling steadily since September 2011 when it was at 5.2% and it is expected to resume its decline in the coming months. Any further increases would be most unwelcome for consumers, not least rail users, with fares set to rise by RPI plus 3% in January 2013.
Lower rate taxpayers would now need to be earning interest of over 3.25% on savings accounts to beat CPI, while higher rate taxpayers would need 4.35%. To beat RPI, lower and higher rate taxpayers would need to be earning over 4% and 5.35%, respectively.
No instant access savings accounts can quite beat inflation at the moment, with KRBS’ direct savings account topping our tables with 3.2%. KRBS’ Internet 60 day notice account does offer 3.35% though.
Cash Isas offer the best rates
There are a number of one-year fixed-rate savings accounts currently offering over 3.25% and if you’re willing to put your money away for five years then a number of banks will offer you 4% or more.
As they are tax free, several instant access cash Isas are able to beat CPI with rates going up to 3.06%, while Coventry Building Society’s 60 day notice Isa tops our notice cash Isa tables paying 3.25%.
One-year fixed-rate cash Isas are currently paying up to 3.35%, the Post Office has a three-year fixed-rate cash Isa paying 3.7% and a five-year fixed-rate cash Isa could earn you more than 4%.