Inflation (or deflation) is the change in the price of something from one period to the next. For example, the price of petrol has increased over past few years.
The typical measure of inflation is simply the rate at which a specific basket of goods change from one year to the next. There is some variation in the different goods that are included within this typical basket and it is this difference which gives us different rates of growth for the retail & consumer price index (RPI & CPI respectively).
Recent changes to legislation mean that the CPI figure has the greatest impact on benefits and pension income, although RPI does still apply to some pensions. The figures are usually announced monthly based upon the previous 12 months and it is the most recent figure for September which has the greatest direct impact on income.
The high rate of 5.2% in September is particularly important as it dictates the amount that all state pensions and state benefits will be increased by as from next year.
Obviously this is good news for those drawing state pensions but it is not so good news for those with bank account and cash ISA savings.
The average interest rate on bank accounts is less than 0.5%pa which means that in real terms savers are losing more than 4.5% of the value of their savings this year alone.
If you are concerned about how inflation is eroding your savings or you want to look at ways to combat inflation then please get in touch.