Inflation falls to 3.2% – but what does that mean?

Inflation came in at 3.2% in the year to November, down from 3.6% in October.

Food inflation in particular also slowed from 4.9% to 4.2%.

In short: that’s good news. It means prices are rising more slowly, which is better for our wallets.

Some food items like olive oil, cereals and pasta are all actually falling slightly in price, while chocolate and milk prices are still going up.

But overall, it’s not ideal still. The Bank of England’s target inflation rate is 2%. That means prices are rising too rapidly.

Every threshold is also still frozen. Tax thresholds are frozen, ISA thresholds are frozen, IHT thresholds are frozen – you name it.

When inflation is high, wages tend to rise to keep pace. But if wages rise and thresholds are frozen, that means we’re getting stung via stealth taxation.

There is some good news here – if inflation is falling now, that could signal to the Bank of England that it’s time to lower the base rate, which sets interest rates. Great news for mortgage holders who are trying to lock in a deal, and lower mortgage rates could boost the stagnant housing market.

Update: The Bank of England has since cut the base rate to 3.75%

However, there’s always give and take with falling base rate: when mortgage rates fall, savings rates also fall, and vice versa. Falling savings rates means we get less bang for our buck when we save money.

To combat this, make sure you’re in the top-paying account on the market. Don’t give in to intertia – that’s what allows banks to get away with cutting savings rates. If everyone moves to the top-paying account, banks will have to offer better rates to attract customers.

You could also consider investing to beat low savings rates. Investing has historically outpaced money held in cash over the long term. Just watch out for fees, as high fees can eat away at your returns.

Check out our top stocks and shares providers here.