The UK’s inflation rate fell to 3.9% in November – a larger drop than economists had anticipated. What does the inflation rate mean? The monthly inflation rates reported by the Office for National Statistics (ONS) capture the change in the cost of living in the UK. There are several different rates recorded by economists: CPI (the consumer prices index); the retail prices index (RPI); and CPIH (CPI including owner occupiers’ housing costs). It is CPI that was recorded at 3.9% last month. CPIH was 4.2%, while RPI was at 5.3%. The indices measure changes in the cost of a huge number of goods and services – from shampoo to secondhand cars, and insurance and air travel. The rates are different because of the various goods and services included in the price tables, and also because of the way the figures are calculated. It is the annual CPI rate that influences Bank of England interest rate decisions. Does it mean items are cheaper? Broadly, no. Most of the items counted by the ONS are still pricier than a year ago, and some increases are still in double digits. These include basics such as breakfast cereal (up by 11.5%), yoghurt (up by 17.4%), and sugar (up by 40.4%). Olive oil, which you may or may not consider a basic, is up by an eye-watering 53.9%. Away from the supermarket shelves, children’s footwear is up by 12.2% and car insurance by 46.4%. Some things do cost less, thankfully. Energy bills fell by 15.4% for electricity and 31% for gas, petrol and diesel have dropped in price, and – possibly driven by Black Friday offers – some appliances cost less this year than last. Washing machines, for example, are 5.6% cheaper. What does it mean for mortgages? The Bank of England is tasked with getting inflation to 2% and last week, when it announced it would hold the base rate at 5.25%, it suggested that more increases could be needed to achieve this. The fall today makes further rises look less likely. In fact, the money markets are now predicting a base rate cut as early as March. Some rate cuts are already priced into mortgages, but if inflation is falling faster than anticipated, there could be further reductions in the cost of borrowing. Some experts had suggested rates on five-year fixed-rate mortgages could dip below 4% in the new year. The latest inflation figure makes that more likely. What does it mean for savers? There is good news and bad. The good news is that many accounts on the market, including some easy access accounts, are now offering rates that beat inflation, so that money in savings is not losing value. The bad news is that expectations of interest rate cuts have been filtering into the fixed-rate savings market as much as into mortgages, and the best deals have already been pulled. As with mortgage deals, UK savers could see more cuts in interest rates as a result of this fall in inflation. How about pensioners? The government’s decision to stick with the triple lock on pensions means that payouts will increase next April by 8.5%, a figure likely to be much higher than the rate of inflation at that time. It is worth noting that the headline rate does mask bigger increases in some goods – including some basics, as outlined above. Unless these fall in price, pensioners may not have as much room to spare as the headlines suggest.