Inflation drops below 10% for the first time since August

Despite the fall food prices remain stubbornly high.

UK inflation, which is used to measure how prices increase, rose at a rate of 8.7% in the year to April, according to the Office for National Statistics (ONS). In comparison, inflation rose by 10.1% in the 12 months leading to March.

While inflation has fallen, it doesn’t mean the price of goods and services is getting cheaper. Instead it indicates that these prices are rising at a slower rate.

“Prices in general remain substantially higher than they were this time last year, with annual food price inflation near historic highs,” said Grant Fitzner, Chief Economist at the ONS.

Food and non-alcoholic beverage prices are now up 19.1% in the year to April, a small reprieve from the 19.2% rise in the 12 months to March. The ONS mentioned that while bread, milk, and cheese prices had fallen vegetable prices had risen.

Chancellor Jeremy Hunt also said that while it was positive that inflation is back in single digits, “food prices are rising too fast.”  

In addition, core inflation, which strips out energy, food, alcohol, and tobacco prices, still rose by 6.8% in the 12 months to April, up from the 6.2% rise seen in the same period to March.

Some economists use core inflation as a key indicator of rising prices because energy, food, alcohol, and tobacco prices can be volatile. This means core inflation can be used to assess “the underlying inflationary pressures in the economy”, according to the ONS.  

One of the main reasons why inflation fell was due to gas and electricity prices, which aren’t rising at the same pace seen this time last year.  

Inflation should not deter savers from comparing deals and switching, as there have been a few improvements to the top rate deals in the market over the past month.

However, the stark reality is that inflation depreciates the true spending power of cash, and it has now been two years since any standard savings accounts could beat it. In May 2021 inflation was 1.5% but the interest rates on offer on standard savings accounts could not outpace it.

There have been a few notable areas within the savings market to see positive uplifts, which may please consumers who want flexibility with their cash or those who are only prepared to lock their money away over the shorter-term.

Easy access accounts, notice accounts and one-year fixed bonds have improved, thanks to a combination of the Bank of England base rate rises and provider competition. Those savers comparing their existing accounts may be wise to switch, as they could earn more interest in the process.

A similar picture can be seen across ISAs, which is good news for those who have not yet taken advantage of their ISA allowance.

The current sentiment within the savings market is leaning towards more interest rate rises, but it will be interesting whether fixed rate bonds will see more improvements over the next few days, or if deals get pulled when providers meet their desired funding targets. Savers will need to keep on top of the changing market if they want to secure a competitive deal.