Inflation has fallen below 4%, find out why this is good news for savers. ...

Savers’ respite as inflation drops below 4%

Inflation has fallen below 4%, find out why this is good news for savers.

By Lana Clements

Savers will rejoice today as inflation drops below 4% for the first time since November 2010.

The consumer prices index (CPI) now stands at 3.6% from 4.2%, and the retail prices index (RPI) fell to 3.9% from 4.8% in January, according to figures from the Office for National Statistics (ONS).

The latest fall in inflation follow significant drops in December - the last time there was such a steep fall over two months was between October and December 2008.The drop is in part because the increase in VAT last January - from 17.5% to 20% - which pushed prices up, no longer has a bearing on the figures.

Inflation is calculated by comparing the price changes between the last two months and the same two months a year ago.

The CPI and RPI dropped thanks to price drops in restaurants and cafes, as well as on tobacco, fuel, alcohol and new cars. Meanwhile, the cost of financial services, clothes and air travel has helped sustain inflation on the CPI.

The fall in inflation is good news for savers who, over the past year or so, have seen the toxic combination of low interest rates and high inflation erode the value of their nest egg.

Kevin Mountford, head of banking, at MoneySupermarket.com, says: "The continuing fall in inflation is great news for hard pressed savers, and this should really help encourage people to start saving again.

"With this fall in inflation, there will be some savings accounts which will now beat inflation, and consumers need to make sure they are on the best deals possible to maximise the returns.

"The top paying savings accounts currently offer rates over six times that of base rate so by choosing these, you can reduce the impact inflation has on your pot."