Time to buy indexed-linked savings certificates?

trenchwars

Well now that RPI has started moving up again, is now the time to buy indexed-linked savings certificates to protect against future inflation?

Myrmidon_J

trenchwars wrote: »

Well now that RPI has started moving up again, is now the time to buy indexed-linked savings certificates to protect against future inflation?

In fact, RPI fell (to 0.0%), whilst CPI rose (to 3.2%).

http://www.statistics.gov.uk/cci/nugget.asp?ID=19

(Index-linked savings certificates and index-linked government bonds are linked to RPI.)

Regardless of the level of RPI (or indeed, CPI) in the present, I think some form of index-linked protection is always advisable to guard against inflation in the future.

trenchwars

Myrmidon_J wrote: »

In fact, RPI fell (to 0.0%), whilst CPI rose (to 3.2%).

http://www.statistics.gov.uk/cci/nugget.asp?ID=19

(Index-linked savings certificates and index-linked government bonds are linked to RPI.)

Regardless of the level of RPI (or indeed, CPI) in the present, I think some form of index-linked protection is always advisable to guard against inflation in the future.

Those are the annual rates of change. The retail price index was 210.1 in January and 211.4 in February, so RPI (and CPI) are both rising. In effect, prices rose 0.6% from January to February.

http://www.statistics.gov.uk/downloads/theme_economy/RP02.pdf

john_s_2

Strictly speaking, it is always time to buy RPI linked bonds to guard against inflation.

Inflation measured by RPI that is.

Perversely, if RPI falls for a long period of time then it is even a better time to buy such bonds (from the NSI at least) as the minimum they'll cut the interest to is 0% - and still pay you the bonus on top.

Eg
Bonus is 1%, RPI is 0% - you'll get 1% above the RPI.
Bonus is 1%, RPI is -1% - you'll get 2% above the RPI.

Happy days! (Tongue slightly in cheek.)

KieranB

trenchwars wrote: »

Those are the annual rates of change. The retail price index was 210.1 in January and 211.4 in February, so RPI (and CPI) are both rising. In effect, prices rose 0.6% from January to February.

http://www.statistics.gov.uk/downloads/theme_economy/RP02.pdf

Sorry, thats not how it works..

Jan (08 to 09) was 209.8 to 210.1 which is a 0.1% increase in RPI
Feb (08 to 09) was 211.4 to 211.4 which is 0% RPI

trenchwars

KieranB wrote: »

Sorry, thats not how it works..

Jan (08 to 09) was 209.8 to 210.1 which is a 0.1% increase in RPI
Feb (08 to 09) was 211.4 to 211.4 which is 0% RPI

You are quoting percentage changes over a year.

Why can I not quote percentage changes over a month?

KieranB

trenchwars wrote: »

You are quoting percentage changes over a year.

Why can I not quote percentage changes over a month?

Because thats not how it works. The inflation figures are calculated over the period of one year. Its what the Bank of England use, what the government use, what all financial institutions use. Its what the media use, its what the UK public use. Its the annual figure that every country across the globe uses.

More importantly, its what ALL indexed-linked savings certificates (the nature of your question) use!

Month on month can fluctuate massively due to the short time scale and the fact seasons can effect it.

trenchwars

KieranB wrote: »

Because thats not how it works. The inflation figures are calculated over the period of one year. Its what the Bank of England use, what the government use, what all financial institutions use. Its what the media use, its what the UK public use. Its the annual figure that every country across the globe uses.

More importantly, its what ALL indexed-linked savings certificates (the nature of your question) use!

Month on month can fluctuate massively due to the short time scale and the fact seasons can effect it.

All I am saying is that the retail price index has increased over the last month and that may signify the start of a period of inflation.

The return on index-linked savings certificates are calculated on the basis of the RPI of the month of purchase, so it would be best to buy them at the start of a period of inflation.

It seems to me that the deflationary pressures on the RPI - the cutting of the base rate and the fall in the price of oil - may have run out of steam.

Biggles

Trenchwars is quite right. The cost of living (as measured by the RPI) has increased over the last month.

Kieran is correct in saying that it's year-on-year comparisons that affect the value of ILSCs but that's history. If you buy a cert now, you are interested in what the index will be in twelve months time.

The annual rate of inflation over the last year has indeed fallen (to 0%), but the fact that the index has actually just risen could be said to indicate that in a year's time the index may be higher.

KieranB

trenchwars wrote: »

All I am saying is that the retail price index has increased over the last month and that may signify the start of a period of inflation.

The return on index-linked savings certificates are calculated on the basis of the RPI of the month of purchase, so it would be best to buy them at the start of a period of inflation.

It seems to me that the deflationary pressures on the RPI - the cutting of the base rate and the fall in the price of oil - may have run out of steam.

Ok, I do see your point, it may indicate that prices are to rise again next month. However its the rate at which they increase that is important and we cannot assume that the one month is not an exception.

For example, using the table ypu provided earlier, even if the index were to rise to 211.6 for example, then the actual annual RPI figure used in the calculations for these index-linked certificates would have fallen once again to -0.02%. Now if it were to fall, this figre would be even greater.

Either way, I would probably

missile

Just to play devils advocate>
The RPI went up more Jan to Feb in 2008 than it did Jan to Feb 2009. So it would appear this is not a very reliable guide to what might happen in the future?