Inflation down, wages up

The UK inflation rate has fallen from 2.8% a year ago to 1.6% in March 2014, according to the Office for National Statistics (ONS). It is now at its lowest rate since October 2009.

The inflation rate has now fallen for six months in a row, the longest consecutive fall since records began. It is also means that inflation has been below the Bank of England's 2% target rate for the last three months.

The Retail Prices Index (RPI) also fell to 2.5% from 2.7%.

Meanwhile the ONS announced today that weekly wages, including bonuses, rose by 1.7% in February, up from January’s figure of 1.4%. So apart from a couple of months in 2010, this is the first time that earnings have been ahead of inflation in the last six years.

The 1.7% figure does include bonuses, however, and without those, wages rose by 1.4%, so below the rate of inflation.

Elsewhere, unemployment in the UK fell to a five-year low of 2.24m in the three months to February, meaning the unemployment rate now stands at 6.9%.

The Daily Telegraph reported that slower rises to the cost of living will make savers hundreds of pounds better off, despite the low savings rates. It quotes from a survey by Moneycomms which says that the “real” return savers can earn from a £20,000 deposit is now £168 higher than a year ago.

Perhaps more importantly, however, this demonstrates the vulnerability of wealth held in cash bank accounts.

Inflation always acts as a corrosive influence on money. If you do not earn a return higher than inflation, the true value of your cash declines, which is why many people have looked towards equity income funds amongst other options to earn decent returns.

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