Inflation cloud has pension silver lining

Official inflation figures were released on Tuesday and the rate for the preferred Government rate of consumer price index (CPI) was up to 5.2% in September. The retail price index (RPI), previously used by governments, is usually higher but on this occasion was lower - at 5% (though up from 4.9% in August).

The Government uses the RPI rate each September to set the annual rate of state pensions for millions of pensioners. In September 2007 the RPI was 3.9% so from April this year state pensions were increased by that amount. As the RPI is now 5% for September 2008, in April 2009 the state pension will be increased by 5%.

Even better news is that many experts think that September’s inflation rate will mark a peak and will come back down towards the target level of 2% next year. This will mean a boost for pensioners in difficult times as they will be getting a 5% increase when inflation should be much lower.

Last week the Bank of England turned away from its fight against inflation and concentrated on the fight against recession and the banking crisis, by lowering its base rate by 0.5% to 4.5%. It is to be hoped that the move will not fuel inflation again.

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