The rate of inflation dropped to a four-and-a-half year low of 1.5% in May, down 0.3% from the previous month, according to the latest data.

It marks the sixth consecutive month that the Consumer Price Index registered a rate below the Bank of England’s 2% target.

The Office for National Statistics data shows that declining food and flight prices have helped to drive down the rate.

Declining inflation rates but issues remain

Food and non-alcoholic beverage prices dropped by 0.6% year-on-year – representing the sharpest fall in a decade – and everyday essentials such as bread and vegetables also declined in price.

According to the Retail Prices Index, the rate of inflation dropped 0.1% between April and May to 2.4%, but several issues remain.

Prices are increasing at a quicker rate than average earnings, which rose 0.7% in the three months to April.

Rising house prices – ONS figures show a 9.9% annual increase in the 12 months until April – are also placing pressure on finances.

Potential rate changes

The Bank of England is widely expected to increase interest rates within a year but the bigger than expected fall in inflation rate means such a decision does not need to be rushed.

The Bank is focusing on price stability and any moves to alter rates could affect that process so rushing through a rate change would appear unlikely.

Politicians have welcomed the news regarding the drop in inflation rates with Chancellor George Osborne saying it is “good news” although he added that there is “lots more to do”.

As a result of wages failing to increase dramatically, a squeeze on finances remains for many people in the UK.

Keeping a focus on money management

Money management therefore remains high on the priority list with many alternative ways to budget being considered.

Once such way to keep spending in check is to use a prepaid card – a great way of ensuring you don’t spend more than you would like.

A prepaid card limits spending to the amount on the card at any given moment and is not directly linked to a bank account, making funds safer.

The cards can easily be topped up or replaced if required while accounts can be checked regularly online if needed.

Unlike credit and debit cards, prepaid cards are not directly linked to a bank account which makes fraudulent activity a lot more difficult.