What lower inflation means for your finances
The inflation rate has hit its lowest level for two years, but it's not all good news
Inflation has fallen to its lowest level in two years, so what does this mean for your wallet?
Data from the Office for National Statistics (ONS) shows that the inflation rate – the cost of goods and services – was 4.6% in October, down from 6.7% a month before.
It is a "significant" drop, said MoneyWeek, as it means the government has met its pledge to halve inflation this year, but the rate remains "substantially higher" than the Bank of England's 2% target.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
Rishi Sunak may be "boasting" about fulfilling his promise, said James Meadway in The Guardian, but "neither he, nor his government, nor even the Bank of England" deserve the credit, "which is driven by falling global energy prices".
"But, make no mistake," warned the BBC, "prices are still going up", just at a "slower rate than they were".
Here is how the latest drop in the inflation rate may help you.
Your pay packet
Rising inflation means workers’ wages "essentially lose their monetary value", said Unbiased. You are "effectively losing money", said The Times Money Mentor, if your pay doesn’t keep up with the rising cost of living
Separate ONS data this week also showed average earnings, excluding bonuses, were up 7.7% between July and September compared with the previous year, which means wages are now growing faster than living costs.
Savings rates
High inflation is a "big problem" for savers if your interest rate is lower than the cost of living measure, explained MoneyHelper, as it takes a "large chunk out of the purchasing power of their money".
The lower inflation rate means there are now some standard savings accounts that can "outpace its eroding prowess", said Moneyfacts. But savers should "act quickly" as the top "enticing" rates can often be pulled once they become fully subscribed.
Pension payments
The state pension rises each year based on a controversial policy called the triple lock, which uses whichever is higher out of average wages, inflation, or 2.5%.
Pensions are due to increase in April 2024 and the highest of those three figures was the 8.5% the ONS recorded for average wage growth, including bonuses, for May to July 2023. If this is the figure the government uses to work out a rise in state pensions it "probably means pensioners receive an uplift twice the rate of inflation", said the i news site.
Liz Emerson, chief executive of the Intergenerational Foundation, told the site that such a move would be a "massive inter-generational unfairness on the young who will have to work for less money for longer and take less while propping up older people".
Cost of borrowing
Borrowing money such as for a mortgage has become "much more expensive than people were accustomed to for more than a decade", said the BBC, as the Bank of England has been raising interest rates for much of this year to bring inflation down.
Economists are now in "broad agreement", said This is Money, that its hikes are "starting to be felt in the economy", meaning there is less of a need to continue. This could "feed through to a decline in mortgage rates", which have hit highs of 6%.
Your personal inflation rate
The rate of inflation is based on the changing costs of a typical basket of goods including food, clothes, transport and energy bills.
Inflation may be slowing but the figure is just an average and your own costs could be rising at a "very different rate", said the BBC, "depending on what you spend your money on".
For example, food inflation is at 10.1%, "much higher than the average overall rate", so households who spend a greater proportion of their outgoings on food will find their personal inflation rate is "higher than the 4.6% headline figure", the broadcaster added.
Similarly, if you don't drive, said The Times Money Mentor, "you won't be as affected by rises in the cost of petrol compared to the average person".
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
Marc Shoffman is an NCTJ-qualified award-winning freelance journalist, specialising in business, property and personal finance. He has a BA in multimedia journalism from Bournemouth University and a master’s in financial journalism from City University, London. His career began at FT Business trade publication Financial Adviser, during the 2008 banking crash. In 2013, he moved to MailOnline’s personal finance section This is Money, where he covered topics ranging from mortgages and pensions to investments and even a bit of Bitcoin. Since going freelance in 2016, his work has appeared in MoneyWeek, The Times, The Mail on Sunday and on the i news site.
-
What the chancellor's pension megafund plans mean for your money
Rachel Reeves wants pension schemes to merge and back UK infrastructure – but is it putting your money at risk?
By Marc Shoffman, The Week UK Published
-
Why Māori are protesting in New Zealand
A controversial bill has ignited a 'flashpoint in race relations' as opponents claim it will undermine the rights of Indigenous people
By Richard Windsor, The Week UK Published
-
Crossword: November 21, 2024
The Week's daily crossword
By The Week Staff Published
-
Changes are coming for 401(k)s and IRAs in 2025. Here's what to know.
The Explainer News about part-time workers, auto-enrollment and penalties for inherited IRAs
By Becca Stanek, The Week US Published
-
Can 'slow shopping' help you spend less this holiday season?
The explainer You may feel pressured to act fast in order to get the best deals — but this can lead to superfluous spending
By Becca Stanek, The Week US Published
-
4 tips to save as health care costs rise
The Explainer Co-pays, prescription medications and unexpected medical bills can really add up
By Becca Stanek, The Week US Published
-
3 tips to lower your household bills
The Explainer Prices on everything from eggs to auto insurance to rent have increased — but there are ways to make your bills more manageable
By Becca Stanek, The Week US Published
-
How to handle financial anxiety ahead of the holiday season
The explainer Between travel, gifts and seasonal sales, it will be tempting to stretch your budget
By Becca Stanek, The Week US Published
-
4 risks to know about when using payment apps
The Explainer Payment apps like PayPal, Venmo, Cash App and Zelle are more popular than ever — but are they safe to use?
By Becca Stanek, The Week US Published
-
How to enjoy eating out without breaking your budget
The Explainer Save money by hitting happy hours, splitting the bill and putting a limit on drinks
By Becca Stanek, The Week US Published
-
How does changing jobs affect your 401(k)?
The Explainer Navigate the switch without negative effects on your retirement savings
By Becca Stanek, The Week US Published