Inflation jumps 1.8% to six-month high as petrol prices rise
RISING petrol prices have pushed inflation to its highest level in six months.
The Consumer Prices Index (CPI) rate of inflation increased to 1.8 per cent in January, up from 1.3 per cent the month before, according to the Office for National Statistics (ONS).
It is the highest inflation has been for six months and ahead of the 1.6 per cent experts had predicted.
What this means for households is that prices for a basket of goods has increased faster than expected.
The increase has largely been blamed on rising petrol prices, and plane ticket and energy prices failing to fall by as much as they did this time last year.
Petrol prices rose by 0.92p to 127.6p per litre in January, according to the RAC, while the ONS says the price of electricity has increased by 8.6 per cent compared to 12 months ago.
What is inflation?
INFLATION is defined as a general increase in prices and fall in the purchasing value of money.
It means you'll have to pay more for the same goods and services over time.
Inflation has a massive impact on people's wages and buying power which can really affect families' bank balances.
For example, if inflation is 10 per cent, a handbag costing £50 will be priced at £55 in a years time.
Inflation, which is measured by the Office for National Statistics, is also what the Bank of England uses as a guide when it is setting interest rates.
See our What is the current UK inflation rate? guide for more information.
Energy bills are, however, expected to fall by £17 a year on average from April 1 when energy regulator Ofgem's new price cap takes force.
Mike Hardie, the ONS' head of inflation said: "The rise in inflation is largely the result of higher prices at the pump and airfares falling by less than a year ago.
"In addition, gas and electricity prices were unchanged this month, but fell this time last year due to the introduction of the energy price cap."
The Consumer Prices Index including Housing costs (CPIH) rate of inflation also stood at 1.8 per cent in January, up from 1.4 per cent in December.
While the retail prices index (RPI) measure of inflation rose to 2.7 per cent from 2.2 per cent.
The increase in inflation could spell bad news for savers though, as it might see the Bank of England slash its base rate in a bid to bring inflation even closer to its 2 per cent target.
Laura Suter, personal finance analyst at investment platform AJ Bell said: "Inflation has now been below the government’s 2 per cent target since August last year, which had been putting further pressure on the Bank to cut interest rates."
Base rate currently stands at 0.75 per cent, but if it's cut savings providers are likely to follow suit.
Rachel Springall, finance expert at comparison site Moneyfacts.co.uk, says savings rates have already "continued on the downward spiral" this month.
More on money
She added: “While savers escaped a base rate cut from the Bank of England this month, there is uncertainty as to whether this could be just around the corner or indeed later this year.
"The top one-year fixed rate bond in the market now pays 0.15 per cent less than last month while the top five-year rate pays 0.40 per cent less.
"So it is vital that savers shop around as it is clear to see that speed is key to grab the most lucrative rates.”