CPI falls by 0.2 percentage points in May

Wonder of wonders: the nation’s inflation rate – as measured by the Consumer Prices Index – declined in may by 0.2 percentage points to 2.8 per cent, its lowest point in three years straight.

It looks like dropping inflation rates could rapidly become the rule instead of the exception this year, with every month but March bringing steady drops in the cost of living, according to the Office of National Statistics. This is good news for consumers, as the cost of consumer goods will not increase as rapidly as it did last year, and doubly good news for the nation’s savers, as interest rates on savings accounts can now that much more easily keep up with inflation.

For those paying the standard rate, any savings product that offers a return of at least 3.5 per cent before tax in order to make real gains after HMRC has its way. However, ISAs are of course non-taxable, meaning that these stay a safe bet in many more economic situations, provided the rate on the savings product is above at least 2.8 per cent currently.

Inflation rates are expected to drop even further as the summer progresses, according to banking experts. This means that any savers with one-year fixed rate ISAs could win big, as some providers – such as Virgin Money – are offering rates as high as 3.3 per cent tax free.

One of the biggest contributors to dropping inflation rates was found to be an easing of the pressure on transport costs, according to the ONS. With the price of petrol falling by more than 4p a litre over the course of May, this translated to much less economic pressure overall.

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