Inflation drops to 12-year low

Banking and Borrowing

Updated on 16 December 2014 | 1 Comment

CPI measurement falls to 1%, the lowest level since 2002.

Inflation has fallen to a 12-year low, according to the latest figures from Office for National Statistics.

The ONS confirmed that the Consumer Prices Index (CPI) measurement of inflation dropped to just 1% in November, down from 1.3% in October. That’s the lowest figure since 2002.

Transport was flagged as a big contributor, as prices fell 1.2% from October, compared to a 0.5% fall between the same two months a year ago. Petrol prices for example fell 3p per litre this year, compared to 1.7p last year, while diesel prices dropped 2.9p compared to 1.5p in 2013. Falls in the price of second-hand cars and air transport were also highlighted.

Another significant contributor was the cost of recreation and culture. Here prices fell 0.3% between October and November, compared to a rise of 0.4% in 2013. Here the main factors were falls in price of "data processing equipment" (mainly PC accessories, like printers) and computer games.

The Retail Prices Index measurement of inflation, which includes things like mortgage repayments, has fallen from 2.3% to 2%.

Last month the Bank of England had predicted that inflation would drop to 1%, and possibly below, within six months. The target rate for inflation is 2%, though the Bank doesn’t believe it will reach that point until mid-2016.

For more read Bank of England: inflation to fall but pay to rise.

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Good news for savers

Inflation falling to such a low level is good news for savers, as there are now even more savings accounts which deliver an inflation-beating return. The problem in recent years has been that most savings accounts paid a smaller rate of interest than the rate of inflation. As a result, savers were essentially losing money.

If you want to get a good return on your savings, read Where to earn the most interest on your cash.

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Co-operative Bank fails Bank of England stress test

Bank of England: inflation to fall but pay to rise

Why you must make a financial plan

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