My second chart shows the annualised change in the RPI on a quarterly, six monthly and annual basis. On an annualised quarterly basis we are seeing inflation still high at 4.2%.
We are told that the biggest downwards pressure came from petrol & oil and food. I’d be interested in what readers are seeing. I’m not noticing any respite in food prices however I am definitely seeing a recent reduction (not just a slower rate of rise which is what a lower but positive annual figure really means unlike a lot of comments that I heard today as I went about my life) in petrol. This will however be a very short lived reduction with vehicle excise duty rising by a bit over 3p in August 2012.
The RPI is a key metric to watch as I use it as a correction factor to account for the devaluation of money when I analyse real gold prices calculated in sterling. I also use it to devalue earnings when I am calculating how big a retirement portfolio I will need.
The CPI in contrast is now increasing year on year at the rate of 2.8%. This metric is important also as it is used when calculating the FTSE 100 cyclically adjusted PE.
As always DYOR.