The latest figures from the Office National Statistics show an alarming jump in the target measure of inflation. At the end of April the Consumer Prices Index (CPI) was up to 3%, having finished March at 2.5%.
The largest contributors to this rise were gas, electricity and heating oil prices which have seen hefty increases. Centrica, the parent company of British Gas, has already warned the city that its profits are going to be lower than expected because it has to pay so much more for gas on the commercial markets. Unfortunately for consumers, this means further rises in British Gas’ prices are in the pipeline and the same is likely to be true for other suppliers as well. This will mean even more upward pressure on inflation. This in turn is likely to make the Bank of England think even harder before cutting interest rates, even though the likes of manufacturers and homeowners are desperate for a reduction in the cost of borrowing.
Other explanations for the jump in CPI come from rising food and drink prices. The soaring price of rice has caught the headlines of late and shows no sign of slowing. According to the International Rice Research Foundation, the possibility of increasing the area dedicated to growing rice is almost exhausted in most Asian countries. With little expansion in area and slowing yield increases, growth in rice production has fallen below growth in demand as populations have continued to increase. Unless there is urgent action from national governments and international agencies the problem will just get worse. Whilst the UK is less dependent on rice than many poorer nations, this is a prime example of how the ripple of an issue occurring many thousands of miles away can still impact on our shores. Indeed, many shoppers in the United States are now faced with the rationing of staples such as rice and flour in an attempt to prevent supplies running out.
The older and more familiar measure of inflation, the Retail Price Index (RPI), also took a jump in April, moving up from 3.8% to 4.2%. The main factors affecting this move were the same as with CPI.
Inflation is a killer for cash. After tax, the interest left by most banks and building societies will struggle to beat inflation. What can savers and investors do to battle the effects of inflation? Make sure you are taking advantage of all the tax-free allowances you are offered. Individual Savings Accounts (ISAs) and pensions protect your cash or investments from the tax man, meaning there is more of the return left to fend off the cost of inflation.