🔔 Good living benefits your pocket as well as your health!

Author: Anna Bowes
18th January 2024

The latest inflation figures are out and unfortunately the rising cost of living was slightly higher in the 12 months to December 2023, compared to November 2023. According to the Office for National Statistics (ONS), the Consumer Prices Index (CPI) was 4% last month, up from 3.90% - and slightly higher than the expected.

But as ever, your own personal rate of inflation comes down to your lifestyle. The biggest drivers of higher inflation were the rising prices of cigarettes and alcohol! Alcohol prices have risen by 9.6% over the 12 months to December 2023, up from 8.8% the previous month and tobacco products have increased by a whopping 16% - this is following the increase in tax duties that were announced in the Autumn Statement. But it’s not just alcoholic drinks that are still rising in price by far more than the average inflation rate. Coffee has increased by 11.9% over the last year, tea by 11.3% and cocoa and powered chocolate by over 22%!

On the flip side, the increase in the cost of participating in recreational sports fell slightly to 3.7%, down from 3.8% and much lower than the increasing cost of alcohol and tobacco. And although the price of sports equipment rose from 3.8% in the 12 months to November, to 5.5% in December, just this little snapshot illustrates that the cost for someone participating in a healthier lifestyle is currently rising more slowly than those who enjoy a cigarette and an alcoholic drink or two.

An area that will be of interest to us all is that the rise in food prices has continued to slow and in the 12 months to December overall food inflation was 8% - down from 9.3% in November and from the eye watering 19.8% between March 2022 and March 2023. Of course this doesn’t mean that prices are necessarily falling – most items are still rising in cost – but it does mean that the rate at which the prices are rising has slowed.

This easing in the annual rate for food was driven by milk, cheese and eggs, where prices rose by 0.5% on the month, compared with a rise of 4.1% a year ago. Prices of a variety of products in this class fell on the month having increased in price the year before, leading to downward contributions from low-fat milk, yoghurt, cheese, and eggs.

This resulted in an annual rate for milk, cheese and eggs of 3.3%, the lowest seen since October 2021.

Although the annual inflation rate for food has been slowing, food prices are still high following sharp rises over the latest two years. The overall price of food and non-alcoholic beverages rose by around 26% over the two years between December 2021 and December 2023. This compares with a rise of around 9% over the 10 years between December 2011 and December 2021.

The price of gas and electricity as well as petrol and diesel has continued to fall heavily too compared to a year ago, although month on month we could see an increase this month (January 2024), as the regulator upped the energy price cap with effect from 1st January. With the current cold spell, this couldn’t have come at a worse time as we are probably all using a lot more energy. However, the expectation is that prices will fall again when the price cap changes next time, in April.

What does this mean for savings rates?

As well as an increase in CPI to 4% in December, core inflation - which excludes items such as food, alcohol & tobacco and energy - remained unchanged at 5.1% - proving inflation continues to be stickier than hoped.

Before the latest inflation figures were announced on Wednesday, the markets had expected six rate cuts this year, starting from May. While we already thought that was probably a little ambitious, this news has changed market sentiment and although a number of cuts are still expected in 2024, it’s unlikely to start as early as May 2024.

That said, the savings market definitely appears to have peaked – and best buy rates are continuing to fall – especially fixed term bond and ISA rates.

This, coupled with the increase to CPI means that there are now fewer accounts available that can beat inflation – but there are still many to choose from, something that was not the case just a few months ago.

The number of accounts currently paying 4% AER or more and therefore matching or beating the latest inflation figure is 835, down from 945 last month. And remember that this data is based on the pre-tax interest rates available. Those who pay tax on their savings have fewer accounts to choose from. Basic rate taxpayers have 353 accounts to choose from, down from 561 – and the majority of these are ISAs and fixed term bond accounts.

For higher rate taxpayers there is just one taxable account available, (as well as 229 ISAs) and that is the Santander Edge Saver which is paying 7% AER on a balance of up to £4,000 only – and you need to have a Santander Edge current account to be eligible to open it. This illustrates just how important cash ISAs are once again, to help savers protect their interest.

So, with savings rates falling and inflation being stickier than hoped, make sure that you review your current savings accounts to see if you could do better. Make sure your cash is still keeping up with the cost of living!