The official rate of inflation hit 3 per cent last month, a whole percentage point above the Governments target rate of 2 per cent and is expected to rise further throughout 2008. In response to this increase, Leeds Building Society has launched its Inflation Buster Cash ISA, available from June 2nd.

Although the Government uses the Consumer Price Index (CPI) to measure inflation, the new addition to Leeds Building Society Cash ISAs will follow the Retail Price Index (RPI), which currently stands at 4.2 per cent. The new ISA will consequently offer a 6.2 per cent interest rate as long as RPI remains at 4.2 per cent.

Items measured by the RPI include food, clothing, education and childcare, council tax, heating, lighting and mortgage interest payments. As these are basic living costs, Leeds Building Society has decided to use the RPI instead of the much lower CPI.

Karen Wint, general manager, marketing and customer services at Leeds Building Society said: “Mervyn King, the Governor of the Bank of England, stated last week that ‘rising energy and import prices will almost certainly push inflation up further, possibly significantly in the coming months. As those price increases feed through to household bills, they will lead to a squeeze in real take-home pay.’

“Savers have seen their real return eroded with prices increasing by 4.20 per cent in the last twelve months and, with the prospect of rising inflation, we expect demand for Inflation Buster Bonds to be very strong and we are now launching another tax free version, which is extremely attractive in the ISA market.”

© Fair Investment Company Ltd