Inflation at lowest rate since 2015- But what does that mean for you?
The inflation rate in the UK has fallen to its lowest rate in half a decade following the Chancellor of the Exchequer's 'Eat Out to Help Out' scheme in August. This headline has been tossed around for some time now, but what does this actually mean for you and your money?
Let's start with Inflation. What is it and how does it work?
Inflation is a measure of how much price of goods and services have changed over time.
The Office for National Statistics has now published that the UK's current rate of inflation has reached a 5 year low of 0.2%.
Inflation is a key measure of the financial health of a nation, meaning that it affects what consumers can buy for their money.
An increase in inflation rates will mean that your money won't go as far as it once did - if inflation goes up, so does the price of goods and services.
The target rate of inflation for 2020 is set at 2%, however with the plunge to 0.2% in August this leaves quite a hill to climb.
Core inflation, which excludes the costs of energy, alcohol, food and tobacco, slumped to 0.9% in August from 1.8% in July.
Prices in restaurants and hotels shrunk by 2.8% in August, compared with the same month in 2019.
With this drop in inflation, what does it mean for the UK?
In short, this mean that prices are 0.2% higher now compared to the same time last year, but overall prices are down in the year in August compared to in the year to July.
It has been said that the main driving force for this dip in inflation is the 'Eat Out to Help Out' scheme, as well as the VAT cuts enforced by Rishi Sunak earlier this year.
Due to the ongoing Covid-19 crisis, consumer confidence is low with people going out less, and in turn, spending less money. This was further compounded with people spending half of what they usually would with the 'Eat Out to Help Out' scheme.
With the furlough scheme now coming to a close it means many people, particularly those who are facing redundancy, are contributing less to the economy in a bid to conserve their cash.
What does the Inflation drop mean for ME?
A stagnant, or slow falling inflation rate, in the short-term, can actually be a good thing. It basically means the cost of goods and services are not increasing.
This will be a welcome change at the supermarket and the petrol station– refueling your car costs less than this time last year and grocery stores are slashing prices at the tills.Some energy companies too are cutting their costs, so it could be a good time to compare your current provider against others to ensure you are getting the most competitive rate.
'Eat Out to Help Out' has been the main cause in the drop in inflation, but as Covid-19 still looms over our economic health, it is likely that the BoE will be keeping a close eye on this slump. With the EOTHO being a short-term scheme, it is said that these inflation figures are subject to revision, meaning that A/W figures could look rather different.