The latest inflation figures from the Office for National Statistics have been released and the Consumer Prices Index (CPI) for the 12 months to June 2023 was lower than expected. CPI rose by 7.9%, down from 8.7% in May. Even better, core inflation, which excludes volatile items such as food and energy, was slightly lower too at 6.9% (from 7.1% in May) although the May figure saw core inflation at its highest level since March 1992!
Interestingly, although omitted from the core inflation figure, food and energy prices are the two key items that have contributed to the slowing of CPI in June. This shows that the interest rate hikes that we’ve seen so far are beginning to slow down demand in core goods and services – which slows down price rises.
As a result of this, the market sentiment around what is likely to happen to the base rate at the next meeting has changed quite dramatically and it looks like the Bank of England will not need to go as far as previously predicted. There’s now a 60% expectation that the base rate will rise by 0.25% at the next meeting on 3rd August – but before today it was highly expected to rise by 0.50% once again.
This means that the Sterling Overnight Index Average (SONIA) rates have fallen too – these reflect the average of the interest rates that the banks pay to borrow sterling overnight from other financial institutions and are another indication that we may be close to the top of the interest rate cycle this time around – and especially with regard to fixed term bond rates. The 1-year SONIA rate has fallen from 5.888% last week to 5.683% today.
So, what helped CPI inflation to slow in the 12 months to June 2023?
Once again, a fall in petrol prices was one of the biggest contributors to the larger than expected fall in the rate of inflation – the price of petrol fell by 22.3% in the 12 months to June 2023 - adding to the fall of 13% last month. But there aren’t too many items that are actually falling in price – remember a lower rate of inflation doesn’t mean that things are less expensive – it just means that the rate at which the prices are rising is slower. As is the case with food prices. Food prices are still rising – overall up 17.5% over the last 12 months, but not as fast as they were in the 12 months to May, which was 18.9%.
That said, once again there is a huge discrepancy between various items of food and depending on your usual choices, your personal food inflation rate might be higher or lower. For example, those who use a lot of sugar will have seen a huge hike in costs as it has increased in price by 53.6% in the last 12 months, even more than it was last month (49.8%). On the flip side, those who eat lamb or goat will have seen prices rising by a more palatable 5.8%, compared to pork which has increased by 24.3% year on year.
What can you do to help in the fight against inflation?
Many of us, I am sure, are changing our shopping habits in some way shape or form, for example I am more diligent about choosing the cheapest petrol station whenever possible, when I am filling up my car.
But with the possibility of the interest rate cycle nearing it’s peak, those who’ve not recently reviewed what you are earning on their cash, could help add pounds to their pockets. And if you don’t need access to all your cash, perhaps tying some up for a bit longer to hedge against rate decreases in the coming years could be something to consider.
Although even the best rates on the market won’t beat inflation, with the recent rate hikes and the easing of inflation, if you earn the best rates you an mitigate much of the damaging effects.
Take the example of the rate of interest the Barclays Everyday Saver is paying compared to the top easy access account at the time of writing, the Chip Instant Access Account. On a balance of £50,000 you will earn 1% with Barclays, £500. In a years’ time, although the balance will have increased to £50,500, the real value after the effect of inflation at its current level of 7.9% would be £46,803 – so your spending power has reduced by £3,697.
If you put your £50,000 into Chip, on the other hand, after 12 months your actual balance would have swelled to £52,255 – and the real value would be £48,429, £1,626 more.
Better still, if you are able to tie the money up for a year at the time of writing the best rate is 6.15% AER with Vanquis. After 12 months the balance would be £53,075 and the real value after inflation would be £49,189 not too much less than the original value.
Take a look at our calculator below and our Best Buy tables to see how much more you could be earning after inflation.