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Inflation remains sticky at 6.7% but food prices fall

Inflation remains sticky at 6.7% but food prices fall
Emma Lunn
Written By:
Emma Lunn

The Consumer Prices Index (CPI) measure of inflation rose by 6.7% in the 12 months to September 2023, the same rate as in August, according to the Office for National Statistics (ONS).

On a monthly basis, CPI rose by 0.5% in September 2023, the same rate as in September 2022.

Rising petrol and diesel made the largest upward contribution to the change in the annual rates, while the largest downward contributions came from food and non-alcoholic beverages.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 6.3% in the 12 months to September 2023, the same rate as in August, but down from a recent peak of 9.6% in October 2022.

ONS records suggest that the October 2022 rate was the highest in more than 40 years.

Nicholas Hyett, investment analyst at Wealth Club, said: “September’s inflation numbers present a messy picture. At the headline level, CPI is flat month-on-month, but under the surface there’s a lot of moving parts. Food prices have fallen while more domestically exposed sectors like restaurants and hotels have seen prices rise. Higher prices for motor fuel are also having an effect.

“That makes it a difficult set of numbers to interpret – especially for interest rate setters at the Bank of England. Had inflation continued to fall, as many had expected, then there would be a strong case for rates to stay where they are – slowly squeezing inflation out of the economy. However, if inflation remains stuck at its current stubbornly high level, that’s a whole different kettle of fish.

“No-one wants inflation to remain stuck where it is for an extended period. If the bank think’s that’s a danger, they may well feel their only option is to set rates on an upwards trajectory once again.”

Benefits uprating

The September inflation figure is important because it is used to set rises to benefit payments and some taxes for the next financial year.

Under the pensions ‘triple lock’ guarantee, the state pension increases by whichever is highest of 2.5%, average wages and inflation. Today’s inflation figure is much lower than last month’s 8.5% wages data, meaning the 8.5% will be used.

If the state pension rises by 8.5% then a full new state pension would go up from £203.85 per week to £221.20. A full basic state pension would rise from £156.20 per week to £169.50.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Today’s inflation reading is the final part in the triple lock puzzle and puts pensioners on course for an 8.5% increase in state pension next year. Inflation has remained stubbornly high but has come off its double-digit heights to remain at 6.7% in September. However, wages data has remained red hot with average wages, including bonuses, hitting 8.5% during the relevant period.

“This news will be welcomed by pensioners who have been struggling during the cost-of-living crisis, but as the second blockbusting increase in a row it does add to the government’s headache as to how much it will cost.”

Prices remain high

However, Inflation remaining static doesn’t mean prices are falling; they are just rising less rapidly and the cost of living is still increasing.

Alastair Douglas, CEO of TotallyMoney, said: “As a result, one in three adults would find it difficult to cover an unexpected bill of £100, and 2.6 million low-income households have turned to high cost or illegal money lenders. More people are missing mortgage repayments, and nine million households are going into winter without any energy credit.

“So, while it is good news that inflation has dropped from its 11.1% peak this time last year, much more needs to be done to protect the vulnerable. Otherwise, it’s going to be another long, cold winter.”