Why this month’s inflation figure could be good news for you

At first glance, there is relatively little festive cheer for your finances in the latest inflation figures.

Prices have increased by 3.2% compared to a year ago. If you filled your virtual shopping bag with goods and services costing £100 a year ago, the same selection will now cost £103.20.

The pace of price rises is well above the Bank of England’s target of 2%, and some items are still rising in price. Chocolate, possibly central to the family diet at Christmas, is 17% more expensive than a year ago.

But more importantly, there are now clear signs that prices are rising at a slower pace. This bodes well for next year, and more immediately for the cost of borrowing.

And, with essential goods driving the slowdown, the latest data will be welcomed by those feeling particularly squeezed by the cost of living.

The inflation rate, which reflects the rising cost of living, has surpassed its recent mini-peak, analysts say.

The maximum peak of inflation occurred in October 2022, when the rate reached 11.1%. The rate then fell, but there was a rebound in late summer 2025, reaching 3.8%.

And it was the price of food – an essential element for consumers – that drove the fall in inflation in November.

Food and non-alcoholic beverages rose 4.2% in the year to November, compared with 4.9% in October. Alcohol and tobacco increased by 4% compared to 5.9% in October.

In the opposite direction to chocolate and beef (which rose by almost 28% in one year), were olive oil (16%), as well as the falls in the prices of flour, pasta and sugar.

It is important to note that food is an essential expense. When the price increases slowly, this is much better news for those on lower incomes who see a greater proportion of their income spent on things that are impossible to do without.

Sarah Coles, head of personal finance at investment firm Hargreaves Lansdown, said this also contributed to the headline inflation rate falling faster than expected: “It has followed the path the Bank of England had predicted – peaking in September and gradually moving downwards.”

The reasons for the slowdown in price growth are often specific to individual items.

For example, the drop in the price of olive oil is mainly due to a recovery in harvests after some particularly bad years of heat waves and drought in Greece and Turkey.

Clothing and footwear prices fell 0.6% in the year to November, compared with a 0.3% rise in October.

This has been linked to stores offering Black Friday discounts due to weak sales as shoppers struggle with cost of living pressures.

Consumers have also changed their habits due to the financial climate of recent years.

Lucy Fairs, who helps run a social cake-sharing club called Band of Bakers in Camberwell, London, said that over the past five years they had started using what they already had in their cupboards, rather than buying extra special ingredients.

“When I chose a recipe for today, I thought about the theme, but mostly I thought about what I already had in my pantry,” said club member Costa Christou.

The rising cost of goods and services has an impact on the money you save or earn. Inflation erodes the purchasing power of the money you have saved and, unless you get a raise, your salary.

Analysts say the latest inflation data reinforces the likelihood of an interest rate cut by the Bank of England’s Monetary Policy Committee on Thursday.

That should make it cheaper for consumers to borrow money, but generate lower returns for savers.

“Lower inflation is good news for household budgets, but it’s a different story for savers,” said Sally Conway, savings commentator at Shawbrook Bank.

“Some savings will inevitably take a hit over Christmas. The key is what happens after. Once the dust settles, it’s worth checking whether the remaining cash is working hard enough.”

Policymakers are trying to encourage more people to invest their money in stocks and shares, which they say will likely generate higher returns over time than cash savings.

For this reason, the Financial Conduct Authority has given the green light to specific support, a scheme that, for the first time, allows banks and financial companies to give suggestions on where to invest their money.

Additional reporting by Josh McMinn