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22 Jun 2022

Inflation hits 9.1% in May 2022: how will it affect your savings?

Food and non-alcoholic drinks are one of the biggest drivers of the May CPI figure

Inflation increased to 9.1% in May 2022, the Office for National Statistics (ONS) has announced. It's the highest it's been since March 1982.

The Consumer Prices Index (CPI) measure of inflation rose slightly from April's 40-year high of 9%. CPI tracks the cost of an imaginary ‘shopping basket’ of around 700 popular goods and services.  

Here, Which? explains why the inflation rate has risen and how it compares to the top-rate savings accounts and cash Isas. We’ll also share tips for tackling the rising cost of living.

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Why has inflation risen?

Food and non-alcoholic drinks are one of the main causes of May's inflation rise. Prices rose by 1.5% between April and May 2022, compared with a fall of 0.3% between the same two months a year ago. The largest contributors were bread and cereals, and meat.

Transport costs also continue to be a major driver of inflation rises, specifically the growing price of fuel and second-hand cars. 

Average petrol prices reached 165.9p per litre in May 2022 - the highest since records began. The average price of diesel in May 2022 - 179.7p per litre - was also a record high.

Second-hand car prices have been driven up by the global semiconductor shortage, which has stalled new car production. More people have turned to the second-hand market as a result.

The graph below shows how inflation has changed since May 2018.

The Bank of England has been tasked with keeping inflation as close to 2% as possible, but it hasn’t been that low since July 2021. Before that, inflation was very low - below 2% from August 2019 to April 2021 - and hit just 0.2% in August 2020 when the UK economy was reeling from the impact of the pandemic.

The base rate, which affects the costs of mortgages and the amount of interest paid on savings, has risen several times since December 2021 in response to soaring inflation - and rose again to 1.25% on 16 June. It could go higher if the Bank of England thinks it could help keep inflation down. The next decision on the base rate will be published on 4 August.

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.

Account typeAccountAERTerms
Five-year fixed-term savings accountBank of London & The Middle East 5 Year Premier Deposit Account3.25% (EPR*) £1,000 minimum deposit
Five-year fixed-term cash IsaUBL UK 5 Year Fixed Rate Cash ISA2.6%£2,000 minimum deposit
Four-year fixed-term savings accountBank of London & The Middle East 4 Year Premier Deposit Account3.1% (EPR*)£1,000 minimum deposit
Four-year fixed-term cash IsaUBL UK 4 Year Fixed Rate Cash Isa2.36%£2,000 minimum deposit
Three-year fixed-term savings accountBank of London & The Middle East 3 Year Premier Deposit Account3.05% (EPR*)£1,000 minimum deposit
Three-year fixed-term cash IsaUBL UK 3 Year Fixed Rate Cash ISA2.36%£2,000 minimum deposit
Two-year fixed-term savings accountBank of London & The Middle East 2 Year Premier Deposit Account3% (EPR*)£1,000 minimum deposit

Source: Moneyfacts. Correct as of 21 June 2022, but rates are subject to change. *The accounts from the Bank of London & The Middle East are Sharia-compliant, and so pay an expected profit rate (EPR) as opposed to an annual equivalent rate (AER).

Clearly, none of the top-rate savings accounts are currently able to keep up with inflation. 

While it’s true that savings and cash Isa rates have been gradually rising, it’s been more than a year since any account has matched the inflation rate, according to analysis from Moneyfacts.

Current account interest on the rise

If you're looking for a better interest rate, some high-interest current accounts offer higher rates than even five-year fixes - but rates are only paid on relatively low balances, and there are sometimes minimum funding requirements.

Nationwide's FlexDirect account, for instance, has recently increased its rate to 5% AER, up from 2% - which it had offered since the rate was slashed in April 2020. 

The interest is paid on balances up to £1,500 for the first 12 months of holding the account, as long as you pay in at least £1,000 a month. After the first year, the rate falls to 0.25%. 

What's more, if you switch to FlexDirect, you can get up to £125 - but you must move over at least two direct debit payments.

Elsewhere, Virgin Money pays 2.02% AER on balances up to £1,000 held in its Virgin Money M Plus account. This automatically links to its M Plus Saver, which pays 1.56% and offers unlimited withdrawals.

While these perks can be handy, make sure the current account suits you before you make a switch. For instance, if you like to have the option to use a bank branch, opting for an online-only bank might not be the best fit.

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How does CPI inflation affect your savings?

CPI inflation is the rate at which prices of goods and services bought by households rise or fall. It tracks the cost of everything from a loaf of bread to a holiday. 

Figures published by the ONS each month show how much prices have changed compared with the same month of the previous year. It's important when it comes to savings as unless the interest rate is able to keep up with inflation, your cash will lose value in real terms. With today's interest rates still miles away from the current sky-high inflation, your money is effectively losing value because you'll be able to buy less with it. 

Even so, you should ensure that your money is making the best return possible - even when savings rates are low.

What can you do to tackle rising prices?

With the ONS figures showing that food and non-alcoholic beverages were one of the biggest contributors to inflation in May, we've rounded up some useful tips to help you keep costs as low as you can.

For helpful advice and tips on how to reduce the cost of groceries, check out our guide on how to save money on food bills, and discover which supermarket is cheaper with our Which? supermarket price comparison analysis

You can see all our top picks in our guide to the best food and drink, or check out our round-up of cheap supermarket dupes that beat your favourite food brands on taste.

To combat rising fuel costs, our guide has tips on how to save fuel and other money-saving driving tips. And if you're buying a used car, we can also help you make sure you get the most for your money.

Get further help with the cost of living

Experts from across Which? have compiled the latest news and advice that can help you navigate the cost of living crisis. Check out our free advice and podcasts to help ease the squeeze on household bills, grocery shopping and more.