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I’ll start off with the good news. Last October, the consumer prices index peaked at a staggering 11.1 per cent. This morning, we learned that it had fallen to 6.8 per cent in the 12 months to July. That’s a sharp total drop and more than a full percentage drop from June’s 7.9 per cent.
It’s not good enough, though. Nowhere near.
July’s plunge was mostly down to falling gas and electricity prices, after last year’s huge spike dropped out of the annual figures. The lower energy price cap, which came into force on July 1, helped here.
The other major inflation driver, food bills, actually increased by 14.8 per cent in the year to July. That’s down from 17.3 per cent in June but still horrendous.
Worse, the fall out from the Ukraine war, with Russia threatening grain exports, could keep wholesale prices high. As could this summer’s extreme weather.
Core inflation, which strips out volatile items such as energy, food, booze and fags, held firm at 6.9 per cent.
I see little to celebrate here.
Especially since this monthly drop may be the best we see for some time.
We can’t even escape the misery by taking a cheap flight overseas. Airline fares are rising along with almost everything else.
The Bank of England may be the world’s worst forecaster but it’s rate-setting Monetary Policy Committee (MPC) is probably right when it warns that future interest rate falls will be “incremental” rather than substantial.
So this is something of a false dawn.
There is bad news for mortgage borrowers as the MPC is almost certain to hike base rates yet again to 5.5 per cent at its next meeting on September 21.
Base rates could peak at six per cent which would drive borrowing costs even higher.
Lenders have been cutting mortgage rates in recent days. Unfortunately, that trend may soon come to an end so borrowers nearing the end of a low-cost fixed rate should grab a good remortgage deal today if they can.
At least yesterday’s inflation figure is good news for savers. While I don’t expect interest rates on best buy fixed rate bonds to rise much, easy access accounts will pay more.
Yet with the very best fixed-rate bond paying 6.1 per cent savers will still be getting less than inflation.
If I had cash to spare I’d be sorely tempted to lock into a five-year fixed-rate bond today, with RCI Bank paying up to 5.80 per cent.
Within two or three months, that could be an inflation-busting rate of return. There is no guarantee, though, these things are impossible to predict.
The FTSE 100 fell yesterday, as investors fear higher interest rates will squeeze profits, while investors can get five percent yields on gilts with less risk.
This is bad news for pensioners to have left their retirement savings in drawdown, as their value will shrink. As will the value of our stocks and shares Isas, with the US market now falling too.
Harvey Jones is the Personal Finance Editor at Daily Express.
