Following a sharp rise in October, new figures have shown that inflation, as measured by the Consumer Prices Index (CPI), remained unchanged in November at 2.70%.
The Retail Prices Index (RPI) actually fell, from 3.2% in October to 3% in November.
However, if economists are right this short period of stability could soon come to an end.
Falling prices
Lower prices on a wide range of goods, including fuel, plane tickets, beer and carpets helped to keep inflation in check during November.
However, many economists and financial experts believe that inflation might start to rise as we move into 2013, as higher energy bills start to take effect and food prices rise following droughts in China and the USA.
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Many people are expecting to see inflation rise to the 3% mark in 2013, 1% above the Bank of England’s target level. In less economically stressful times the Bank would have used the interest rate lever to help control inflation; however it has not done so for fear of pushing the economy into an even deeper recession.
Getting a real return on savings
Whilst news that inflation remained unchanged in November will be welcomed, the thought of further rises in 2013 will fill savers with dread.
As a result of the government’s Funding for Lending Scheme, the past few months have seen hundreds of savings accounts have their interest rates cut or been withdrawn, reducing choice for savers and making it harder than ever to find a real, above inflation, return.
Even with inflation at 2.70%, a basic rate tax-payer needs to tie up their savings for at least three years, to get an interest rate which will, after tax, beat inflation.
If, as predicted, inflation rises in 2013 it may again become impossible for the majority of people to find savings accounts which beat inflation.
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