Rising transport costs along with increasing prices for clothing, and recreation and culture items helped increase inflation. These were partially offset by a downward contribution from falling food and non-alcoholic beverage prices.
CPI including owner occupiers’ housing costs (CPIH) 12-month inflation rate was 0.8 per cent in December 2020, up from 0.6 per cent in November 2020.
Rachel Winter, associate investment director at Killik & Co, said: “As we start the new year in a third national lockdown, and the continued impact on jobs is felt widely, consumers will be tightening the spending reins which is likely to put downward pressure on inflation.
“However, the figures for December show that a surge in Christmas spending has propped up inflation numbers for now, although it remains very low compared to previous years.
“It is essential that savers continue to monitor their options. With interest rates at record lows and the Bank of England keeping an open mind when it comes to negative interest rates, many will find their savings are not keeping pace with inflation.”
According to Moneyfacts, savers can’t keep pace with inflation in an easy access account without restrictions on age, location, or having a linked current account.
Savers can beat inflation with the most competitive one-year fixed rate account (0.8 per cent), but not the average rate, which Moneyfacts puts at 0.49 per cent.
Sarah Coles, personal finance analyst at Hargreaves Lansdown said: “Unusual pricing patterns produced by the pandemic doubled inflation in December – to 0.6 per cent. It means trying to beat this moving target with your savings has become increasingly exhausting.
“The crisis has shifted discounting around, so we get one month of rock bottom inflation, followed by a month of slightly bigger price rises.”
She added: “To make matters worse, higher inflation is expected to kick in during 2021. There are disagreements on exactly how high it will go, but there’s a broad consensus that it’s on the way up, which is going to take a toll on savings languishing in accounts paying next to nothing.”