Although the main measure of inflation remained unchanged in September, the figure is still significant for millions of people who are drawing a State Pension or contribute to an ISA (Individual Savings Account).
According to the Office for National Statistics (ONS), the Consumer Prices Index (CPI) measure of inflation remained unchanged at 2.7% in September.
Despite CPI remaining unchanged, the Retail Prices Index (RPI), an alternative measure of inflation, fell slightly from 3.3% to 3.2% in September.
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Although CPI remained unchanged, the news was significant as September’s CPI figure is used to set increases to the State Pension as well as ISA contribution limits.
State Pension increase
The State Pension benefits from the so-called ‘triple lock’, which means it rises each year by the higher of inflation (CPI), wages or 2.5%. As wages have only risen by 1.1%, pensioners can expect a 2.7% increase in their basic State Pension from April 2014 onwards.
Unless the Chancellor springs a surprise in his Autumn Statement due in December, this will mean a monthly increase of £2.97 taking the State Pension to £113.12 per week.
However, many pension experts have pointed out that with RPI running significantly above CPI and utility companies increasing the cost of gas and electricity by as much as 10%, the increase will be soon swallowed up and many pensioners could actually be left worse off.
ISA contribution limit increase
The September rate of inflation, again as measured by CPI, is used to increase the maximum amount which can be paid each year into an ISA.
ISAs are popular with both savers and investors as they shelter gains from tax; however the maximum contribution each year is capped.
In the current tax-year up to £11,520 can be paid into an ISA, of which half can be held in a Cash ISA. From April next year the limit is expected to increase to £11,880.
