We're experiencing the "wrong kind of inflation" according to the Office of Budget Responsibility. That's why it's rampaging to a 20-year high – or two-year high, depending on which measure you use.
The traditional measure – the RPI – soared to 5.5 per cent in February, it's highest year-on-year level since 1991. Meanwhile CPI – which excludes property prices – climbed to 4.4 per cent, which it last reached in 2008. The rate of inflation is more than double the Bank of England's official target of 2 per cent.
The Office of National Statistics blamed clothing, energy and housing costs. The Bank of England Governor, Mervyn King, meanwhile, has repeatedly blamed external factors, such as oil and commodity prices. But the Bank's chief economist, Spencer Dale, has broken ranks to say that inflation is, after all, "home made".
"Developments in the rest of the world certainly affects us but ultimately UK inflation is our responsibility," Mr Dale said in a speech on Thursday. "It is made and controlled in Threadneedle Street."
The economist is one of three hawks on the rate-setting Monetary Policy Committee who voted for higher interest rates in the last two meetings. But he warned this week that inflation is likely to remain above target for at least the next year or so.
That's bad news for savers who are seeing the real value of their nest-eggs shrinking while rates remain at record lows and inflation soars. With CPI at 4.4 per cent, basic-rate taxpayers need to earn a gross return of 5.5 per cent on their savings just to retain their spending power. For higher-rate taxpayers, only interest of 7.3 per cent would ensure their cash grows. What are the chances of getting that? Zero at the moment.
But there is some good news on the horizon. National savings & Investments is planning to relaunch its tax-free inflation-proof Savings Certificates later this year. The scheme traditionally pays RPI plus 1.5 per cent which would mean a return of 7 per cent based on the prevailing rate of RPI.
The certificates were withdrawn last July after being heavily oversubscribed. At the time the Government said: "We've seen significant amounts of money invested in these products over recent months and so we've taken the difficult decision to withdraw Savings Certificates from general sale."
Since then, savers have no inflation-beating home for their cash. There are RPI-linked bonds from the Post Office and – launched this week – Birmingham Midshires, but you have to pay tax on the returns, so they will still be outpaced in real terms. So the return of Savings Certificates is something to look forward to. Of course, once inflation is brought back under control by Mr King and his cohorts, savers should be able to find better returns in high street accounts. But even then, they won't be able to get a cast-iron hedge against inflation.
Don't miss ISA deadline
A reminder about your tax-free individual savings account. If you have not yet used the 2010-11 allowance, you have until 5 April to do so. For this financial year you can shelter up to £10,200 from tax demands in an ISA. If you don't use it, you'll lose it.
You can use your whole allowance in a stocks and shares ISA or put up to £5,100 in a cash ISA, and then use your remaining allowance – up to £5,100 – in a shares ISA.
A quick tip – if you're worried about investing in the stock market but want to use your full ISA allowance, you can use a cash fund offered by some financial funds. And when you're more comfortable about markets you can switch to a more adventurous fund.Reuse content