Inflation drops to 5 per cent, interest rates still suffer

While recently released figures indicate the nation’s inflation rate dropped to 5 per cent in October, interest rates on personal and business bank accounts are still not enough to make up for the deficit.

The Office for National Statistics released the figures, showing that September’s 5.2 per cent yearly inflation rate as measured by the consumer prices index dropped by 0.2 percentage points in October.  A price war between major supermarket chains helped to drive inflation down last month, with petrol and fuel prices dropping as competition intensified.

The retail prices index also dropped in October by an equal rate, with the 5.6 per cent RPI dropping down to 5.4 per cent for the year.  The inclusion of mortgage interest payments in the RPI results in the index traditionally running slightly higher than the consumer prices index.

Due to a decline in the price of crude oil, the cost of petrol and air travel dropped, while food prices were kept down by good harvests.  This aided in offsetting energy prices increases, although domestic fuel cost increases are expected to have a contributory factor to November’s inflation rate, which is projected to increase.

October saw Npower increase its prices, following on the heels of E.ON, Scottish Power, SSE, and British Gas.  EDF currently plans to institute its own price changes for the month of November.

Even though inflation did indeed fall last month, rates are still substantially higher than the 2 per cent target rate set by the Bank of England, and finding savings accounts with interest rates higher than the inflation rate is a daunting challenge.  Mervyn King, the governor of the Bank, is due to write George Osborne, the Chancellor of the Exchequer, in order to offer up an explanation as to why the Bank’s target has been out of reach for so long.

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