Inflation falls for third month in a row to 10.1% - what it means for your money
UK inflation has fallen for the third month in a row - but the cost of living still remains at one of the highest levels in 40 years.
Consumer Price Index (CPI) inflation nudged down to 10.1% in the 12 months to January - a bigger drop than economists had predicted.
This is marginally down from 10.5% and means inflation has fallen further back from a 41-year high of 11.1% in October.
Crucially, this doesn't mean prices have stopped rising - they are still going up, just not as quickly.
The Office for National Statistics (ONS) said the further decline was largely due to slowing prices of fuel and restaurants and hotels.
Shop prices 'are yet to peak and will remain high' as inflation hits new heights
But this was offset by rising prices for alcohol and tobacco, while food inflation stood at 16.7% - only marginally down from 16.8% the previous month.
The cost of household goods and services edged up to 26.7%, from 26.6% the previous month, due to the high cost of energy.
Inflation shows how the prices of goods and services have changed over 12 months with food prices continuing to increase faster than the regular rate of inflation.
When inflation is higher, you're paying more for something compared to one year ago.
For example, if something cost £1 last year and the rate of inflation is 2%, it would now cost £1.02 today.
Responding to the figures, Chancellor Jeremy Hunt said any decline in inflation is welcome but "the fight is far from over.
"High inflation strangles growth and causes pain for families and businesses - that's why we must stick to the plan halve inflation this year, reduce debt and grow the economy."
Labour's shadow chancellor Rachel Reeves said: "With inflation still close to a 40 year high, people will be asking if 13 years of Tory government has left them and their family feeling better off? The answer will be no.
"Despite Britain's enormous potential, in April households will be hit by another economic blow when energy prices go up.
"Labour would be bringing in a proper windfall tax on oil and gas giants now to stop energy bills going up in April. Our long-term plan to sprint to clean power and insulate 19 million homes will keep bills low for the fut."
8 money changes coming in February including Universal Credit and passport fees
Will inflation keep falling?
Some economists have said the latest inflation figure shows the UK cost of living crisis may finally be starting to ease.
But of course, inflation remains in double digits - so prices are still rising rapidly, just not as quick as before.
Inflation also remains five times above the 2% target set by the Bank of England.
The Bank of England currently predicts CPI inflation will fall to around 4% towards the end of this year.
Last month, the governor of the Bank of England Andrew Bailey said there could be a “rapid” fall in inflation following a drop in global energy prices over recent weeks
Wholesale gas prices have fallen thanks to milder weather and high levels of gas storage.
Prime Minister Rishi Sunak has vowed to halve inflation "by the end of the year" as one of his five visions for Britain.
Why is inflation still so high?
There are several reasons why inflation has soared over the last year - the first being the price of energy.
Energy prices rocketed following the Russian invasion of Ukraine in February 2022.
Demand for energy was also already high after Covid restrictions ended.
The jump in wholesale energy costs saw the typical household gas and electricity bill shoot up to £1,971 in April last year.
Bills were then due to rise to £3,549 in October but the Energy Price Guarantee was brought in instead.
The Energy Price Guarantee has “frozen” energy bills for the average family at £2,500 - although this isn't a total cap on your bills.
You can still pay more or less than this, as what is actually capped is the unit rates for gas and electricity used.
The Energy Price Guarantee will rise in April 2023 to £3,000 for the typical household - although campaigners including Martin Lewis have called on this decision to be scrapped.
Another contributor behind rising inflation is the price of food, which has also jumped dramatically this year.
The war in Ukraine has had a knock-on effect on what we pay in the supermarkets here in the UK, as this has pushed up the cost of animal feed, fertiliser and oil.
Retailers are also being hit by higher energy costs and rising wages, with this being passed down to customers.
Why is high inflation bad?
Put simply, high inflation means prices are rising fast - so you're not able to buy as much for your money as you were before.
This is particularly bad when inflation outstrips wage growth, as you need to use a higher percentage of your money to buy everyday essentials.
Higher inflation has also led to the Bank of England putting up its base rate ten times in a row since December 2021.
This means millions of mortgage deals and borrowing rates become more expensive.
The Bank of England is raising its base rate - currently at 4% - to try and lower inflation.
By raising interest rates, the idea is that people spend less, demand goes down and then this should mean inflation drops.
What can you do to tackle rising inflation?
When inflation is high, it is important you take stock of your money and make sure it is working as hard as possible for you.
For example, any savings you have should be in high-paying account. Savings rates have been creeping up slowly.
The top-paying easy access account currently pays 3.1% or you can get up to 4.5% fixed.
Keep in mind if you fix for a long time, you won't benefit from any potential future rate rises.
If you have investments, you might want to consider diversifying your portfolio with a mix of assets - but do your research first and seek proper advice.
Another thing you should be doing is reassessing what you're buying.
See if you can save money in the supermarkets and take a good look through your bank account too and see if they are any bills you can lower.
Read more similar news:
Comments:
comments powered by Disqus
