Your questions: Inflation index

The rising price of imported goods - particularly fruit, vegetables and toys - has caused an unexpected rise in one measure of UK inflation.

The Consumer Prices Index (CPI) was pushed up to an annual rate of 3.2% in February, from 3% a month earlier.

But a sharp fall in mortgage repayments caused the Retail Prices Index (RPI), which includes housing costs, to fall to zero for the first time in 49 years.

Here, reporters and correspondents from BBC Business tackle a selection of your questions about what these figures mean to you.

YOUR QUESTIONS

Why does the CPI include items such as rose wine?

Is it better to spend your savings at the moment ?

Does this mean fewer goods will be produced?

How will this affect my national savings certificate?

ANSWERS

Why does the CPI include items such as hot rotisserie chicken, rose wine and MP4 players which I feel are not items purchased by the majority of the population on a frequent basis? These are not part of my weekly shop so how can they be used as a reflection of a typical shopper's basket?
Maria Cupper, Bournemouth

Kevin Peachey:

The Office of National Statistics (ONS) reviews the "typical" basket of 650 goods and services every year, and from this it collects 120,000 prices to calculate inflation. You won't always buy everything on the list.

It's dominated by everyday goods, such as sugar and mushrooms and also includes more occasional - but typical - buys such as shoes and bed sheets. It also reflects our changing spending habits. For example, the mangle and dance hall admissions were on the list in the 1950s. This decade 35mm camera film was discarded from the basket as most consumers now take digital photos. You can read the ONS explanation about how it decides what should be in the basket of goods here .

For a specific representation of how your cost of living has changed go to the BBC's personal inflation calculator

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Is it better to spend your savings at the moment?
Nigel Graham, Ruislip

Kevin Peachey:

I would not want to tell you how best to manage your own finances Nigel, but here are some facts to consider.

Interest rates are at a historic low at the moment. The average interest rate at the end of February on an instant access account with a bank or building society was 0.17%, according to the latest Bank of England figures. However, at this time of year many consumers focus on what can be put in an tax-free Individual Savings Account (ISA). Some of the best ISA interest rates at the moment are around 3.5% - above the official inflation rate.

If you invest your money in stocks and shares, remember the risk is that your investment can go down as well as up. There are some bargains to be had at the moment if you choose to spend your money on, for example, a UK-based holiday. If we all spend, then this will provide some stimulation for the faltering economy. Many advisers would suggest that keeping savings aside as a safety net in case you are made redundant, you fall ill or your family circumstances change is a good idea.

If you still have expensive debts, such as on credit cards, you might want to look to clear those with any excess funds rather than saving. The choice, however, is yours and really depends on your personal circumstances.

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Does a prolonged period of deflation mean that fewer goods will be produced and that this could lead to inflation?
R L Cave, Stamford Lincs

Nils Blythe: Deflation - falling prices - is often caused by weak demand for goods, which drives prices down as producers compete for a smaller number of customers. Then a deflationary spiral can begin: prices fall, consumers defer purchases of goods waiting for even lower prices, so prices fall again. Deflation also squeezes company profit margins, so they either cut wages or reduce employment. And if that happens on a large scale it leads to even less demand for goods and therefore less production. So although deflation doesn't in itself mean lower production of goods, it usually occurs as part of a general economic slowdown which results in lower production. In theory, at the end of a recession so much production might have been closed down that there could be a real shortage of capacity for producing or transporting particular goods, which could push prices up sharply. In practice, recessions usually end quite gradually allowing time to rebuild production capacity. But clearly there are people with real concerns about the return of inflation in a few years time.

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I have index-linked national savings certificates which have a return of increase in RPI plus 1 %. If RPI is negative will my capital invested be reduced, eg if RPI is -2% will my capital be reduced by -1% or will it remain unaffected?
Steve Harper, Worcester

Ian Pollock:

National Savings & Investments (NS&I) says its index-linked savings policies will always pay the stated interest rate on top of the inflation linking, even if inflation falls to 0% or is negative. Thus if someone has a savings certificate paying RPI plus 1%, that 1% will still be paid, so long as the saver holds the investment for the three or five year term.

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