I’VE written many column inches already on inflation in recent months, detailing its causes as well as providing some advice to both savers and investors alike, on how best to protect themselves from the threat of rising inflation rates.

Last Tuesday saw the release of the latest monthly inflation data and again it made grim reading for savers.

The consumer prices index (CPI), the Government’s preferred inflation measure, rose to 4.5 per cent after a surprise decline in March.

Core inflation, which excludes volatile items such as alcohol, tobacco and energy prices, also hit a record high of 3.7 per cent in the 12 months to April 2011.

On a month-on-month basis, inflation rose by one per cent, which may not sound much, but this was only the second time in 15 years that inflation rose by so much in a single month.

Like a naughty schoolboy who had forgotten to do his homework, Mervyn King, the Bank of England Governor, blamed the latest inflation shock on a 29 per cent jump in air fares as Britons headed abroad during the extended Easter holidays.

As I’ve highlighted previously, rapidly-rising inflation rates are not just a UK phenomena.

In emerging markets such as China, India and Brazil, inflation has been soaring to near double-digit levels and core inflation in the Eurozone is also accelerating, despite the problems in Greece, Portugal and Ireland.

To try and tame the inflationary tiger, central banks in emerging markets have been raising interest rates and pressure is building on the two major laggards, namely the UK and the US, to follow suit.

Rising interest rates have implications for fragile economies and future economic demand.

In recent weeks, stock markets have become increasingly nervous about future global growth prospects, reflected by the sharp sell-off in some commodity and share prices.

Rather than go over old ground and discuss again some inflation protection investment strategies, I thought I would take this opportunity to have a look at the latest inflation protection product to hit the market – National Savings’ new fiveyear index-linked savings certificates.

National Savings and Investments (NS&I), the Government- backed savings organisation, has just reintroduced its five-year indexlinked savings certificates, which pay tax-free interest equal to the annual rise in the Retail Price Index (RPI), plus 0.5 per cent on sums of up to £15,000.

These inflation-beating savings plans were closed to new investors in July last year, but have recently been re-launched due to strong demand.

So are they any good?

Well, it is currently the only way savers can be sure of getting returns greater than inflation while still protecting their capital.

If RPI inflation remained at its March level of 5.3 per cent, these certificates offer 5.8 per cent interest, tax free.

To achieve these returns from a conventional taxed savings account, a basic rate taxpayer would need to earn a gross rate of 7.25 per cent, a higher rate taxpayer would need to find returns above 9.67 per cent, while a 50 per cent taxpayer would need to achieve a whopping 11.6 per cent.

At present, the highest rate paid on five-year fixed-rate savings accounts and cash ISAs are about five per cent, so on the face of it, these certificates look a great deal.

However, there are a few catches.

Firstly, these certificates are less generous than previous issues.

Secondly, savers must be willing to tie up funds for the duration, otherwise some or all of the index-linked taxfree interest will be lost.

In addition, if inflation falls back towards its 20-year average of about three per cent, and interest rates start to rise (highly likely in my view), the five-year certificates could become uncompetitive relative to alternative investments, particularly as they offer no capital growth.

• Mark McMullan is a Chartered Fellow of the Chartered Institute for Securities and Investment and an assistant director in the Teesside office of Brewin Dolphin, and can be contacted on 0845-213-1340.