Inflation rises to highest rate since June 2014
According to the Office for National Statistics (ONS), the main reason for the increase in inflation is rising petrol and diesel prices, and to a lesser extent food prices.
These were, however, offset by clothing and footwear prices falling.
Analysts now expect inflation to rise above and beyond the Bank of England’s 2% target during 2017.
Tom Stevenson, investment director for Personal Investing at Fidelity International, said: “With Britain seemingly heading for a hard Brexit, it’s likely we will see the pound continue to wobble over the next two years, resulting in higher inflation in the short term. Indeed, price rises are expected to reach 2.8% by the end of the year.”
The problem with rising inflation is that it erodes the real term value of savings, and with cash interest rates so low, savers may want to consider investing in order to beat rising inflation.
Mr Stevenson adds: “For anyone who is unsure about the benefits of investing in the stock market over stashing cash under the mattress, our calculations show if you had invested £15,000 into the FTSE All Share index 20 years ago you would now be left with £52,965.
“If, however, you had invested £15,000 into the average UK savings account over the same period, you would be left with a paltry £19,916. That’s a difference of £33,049 – too big for any investor to ignore.”
The Retail Prices Index (RPI) rate of inflation, which unlike CPI includes certain housing related costs, rose to 2.6% in the 12 months to January – up from 2.5% in December.
The term is interchangeable with stock exchange, and is a market that deals in securities where market forces determine the price of securities traded. Stockmarket can refer to a specific exchange in a specific country (such as the London Stock Exchange) or the combined global stockmarkets as a single entity. The first stockmarket was established in Amsterdam in 1602 and the first British stock exchange was founded in 1698.
Replaced as the official measure of inflation by the consumer prices index (CPI) in December 2003. Both the Retail Price Index and CPI are attempts to estimate inflation in the UK, but they come up with different values because there are slight differences in what goods and services they cover, and how they are calculated. Unlike the CPI, the RPI includes a measure of housing costs, such as mortgage interest payments, council tax, house depreciation and buildings insurance, so changes in the interest rates affect the RPI. If interest rates are cut, it will reduce mortgage interest payments, so the RPI will fall but not the CPI. The RPI is sometimes referred to as the “headline” rate of inflation and the CPI as the “underlying” rate.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
The Consumer Price Index is the official measure of inflation adopted by the government to set its target. When commentators refer to changes in inflation, they’re actually referring to the CPI. In the June 2010 Budget, Chancellor announced the government’s intention to also use the CPI for the price indexation of benefits, tax credits and public sector pensions from April 2011. (See also Retail Prices Index).