Inflation: rising cost of living slows in September

Price hikes eased slightly in September as the economy continued to reopen, according to official data.

The increase in the cost of living, measured by the consumer price index, fell to 3.1% in the year to September, from 3.2% in August.

Higher transport prices contributed most to the price increase.

It comes after the Bank of England warned it “will have to act” on rising inflation, suggesting interest rates may rise soon.

The inflation rate dropped slightly last month as restaurant prices rose less this August than last August, when the Eat Out to Help Out program was running. the National Statistics Bureau said.

Under the schedule, diners got a state-backed 50% discount on meals of up to £ 10 each on Mondays, Tuesdays and Wednesdays.

Mike Hardie, head of prices at the ONS, said: “However, this was partially offset by most of the other categories, including price increases for furniture and household goods and food prices which have fallen the most. slowly from this year last year.

“The costs of goods produced by the factories have risen again, with metals and machinery showing a notable increase in prices. Road transport costs for UK companies have also continued to rise over the summer.”

Put simply, inflation is the speed at which prices are rising: if the cost of a £ 1 jar of jam increases by 5p, the inflation of the jam is 5%.

This also applies to services, such as getting your nails done or claiming your car.

You may not notice low inflation levels from month to month, but in the long run these price increases can have a big impact on how much you can buy with your money.

Read more about inflation here.

Although price increases eased in September, the 3.1% increase remains far above the Bank of England’s 2% target.

Transportation costs contributed the most to the price increase last month.

Average gasoline prices stood at 134.9 pence per liter, up from 113.3 pence per liter in September 2020, when travel was cut due to travel restrictions.

The ONS added that the September 2021 fuel price was the highest recorded since September 2013.

The increase in used car prices also contributed to the increase in transport costs, which in September were 2.9% higher than in August.

Suren Thiru, head of economics at the British Chambers of Commerce, said that further price increases are expected in the coming months “with the increase in the maximum price of energy, the partial cancellation of the VAT cuts for hospitality. and tourism and the persistent disruption of the supply chain “.

He warned that rising inflation could disrupt the UK’s economic recovery by reducing people’s purchasing power and corporate profit margins.

Ed Monk, investment director for personal investments at Fidelity International, added: “The slight slowdown in inflation today does not change the cost of living crisis facing families.

He said many household items are becoming more expensive and consumers may face further cost increases if interest rates change.

“The last thing families will want to think about is that mortgage payments will go up as well, but now it seems more likely after the Bank of England has indicated it is ready to act, perhaps as early as this year.”

Ruth Holroyd usually takes care of the weekly family grocery shopping. “We’re just starting to notice a little bit of the pinch,” he told BBC Breakfast.

“I’ve noticed that the prices are higher for the whole store, but where the prices stay the same for things like grapes and strawberries that come in a basket, the baskets have shrunk, so you don’t get that much.”

She is primarily concerned about the impact of rising energy bills. He was previously a People’s Energy customer, but the company went out of business in early September, collapsing due to rising gas prices.

Ruth predicts the household’s energy bill will double from £ 120 to £ 250 per month.

Due to the expense, Ruth says that family gifts are pretty rare these days: “What would be really nice is to let go every now and then and dream of a really nice vacation or to be able to take your kids out somewhere.

“These are things like that that we would like to do more about.”

Liz Martins, senior economist at HSBC, also told the BBC’s Today program: “We cannot reduce our concerns about inflation just because this number was a little lower than expected.

“Since September, there has been a big hike in natural gas prices, a hike in gasoline prices and global oil prices and from the Bank of England’s point of view, we’ve also seen more people start worrying about it. ‘inflation”.

He warned that the economy was not “off the hook” yet.

It comes after Bank of England Governor Andrew Bailey warned Sunday that the Bank of England “will have to act” on rising inflation.

The bank has already said inflation in the UK is expected to exceed 4% before easing when the economy recovers from Covid.

However, he did not suggest when the Bank could raise rates from the current all-time low of 0.1%.

The governor said rising energy bills could cause inflation to rise longer than previously thought.

Business Secretary Kwasi Kwarteng told BBC Breakfast on Wednesday that price increases were “a real cause for concern,” adding that the government wanted inflation rates to be lower.

He suggested that the price increases were partly due to increased demand as the economy reopened.

“When you see strong enough economic growth, there is always the danger of having inflation. Now the crucial question is: how long will this inflation last?” He said.

He added that he had recently spoken to the Governor of the Bank of England and that “hopefully” the price increases will be contained.

Investors are expecting a rate hike by the end of the year or early 2022 in an effort to bring inflation back to the 2% target.

The slight easing of inflation in September comes more like a temporary lull in rising cost of living than a sign that it’s over.

Last month’s data compared August to a year earlier, when prices in restaurants and hotels were artificially low due to the government’s Eat out to Help Out scheme. This month’s figures, by contrast, compare prices now with those of September 2020, when the scheme was no longer operational.

The average increase in the cost of living of 3.1% masked sharp increases in the prices of items such as airline tickets, up 9.7%, or carpets, up 9.6%.

And there are signs of further inflationary pressure on the way, with manufacturers paying 11.4% more for raw materials and commodity prices leaving the factory up 6.7%, the largest increase in a decade.

An interest rate hike later this year, with rates continuing to rise into the new year, seems even more likely than not.