Inflation now at 2% target

The latest price inflation figures show the Consumer Prices Index (CPI) measure of inflation has reached the government target of 2%.

CPI inflation was down from 2.1% the previous month to reach 2% for the twelve months to December 2013.

This is the first time inflation has been at 2% since November 2009 and should remove some of the pressure on the Bank of England to raise interest rates earlier than expected, allowing the economic recovery to take hold.

Inflation as measured by the Retail Prices Index (RPI) rose to 2.7% in December, from 2.6% the previous month.

Economists expect CPI inflation to remain at around the 2% level for some time to come, with generally easing pressures on prices.

Of course this price inflation figure of 2% represents an average figure and your individual experience of inflation is likely to be quite different, possibly much higher.

We often find that people in retirement tend to experience higher levels of price inflation than the working population, as the goods and services we consume in later life tend to increase in price at a faster pace.

Making an assumption about future price inflation is an important part of Financial Planning, as you need your assets and income to maintain value in ‘real terms’, once inflation has been taken into consideration.

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