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End of Eat Out to Help Out pushes inflation to 0.5%

Written by: Emma Lunn
The consumer prices index (CPI) 12-month inflation rate was 0.5% in September 2020, up from 0.2% in August.

According to the Office for National Statistics (ONS), transport costs, and restaurant and café prices made the largest upward contributions (of 0.23 and 0.21 percentage points, respectively) to the change in the 12-month inflation rate between August and September 2020.

End of Eat Out to Help Out discount

The official end of the Eat Out to Help Out scheme meant prices for dining out rose during September, partially offsetting the sharp fall in inflation for August when inflation was just 0.2%.

The rises were partially offset by smaller downward contributions from furniture, household equipment and maintenance; games, toys and hobbies; and food and non-alcoholic beverages.

Alistair McQueen, head of savings and retirement at Aviva, said: “These latest figures show a slight uplift in prices.

“Price growth has been partly triggered by restaurants and bars reverting to more normal pricing following the conclusion of the Eat Out to Help Out scheme. Strong interest among homeowners to renovate their properties is likely to have put upward pressure on home improvement product prices too.”

Boom in second-hand cars

This month, transport had an upward contribution for the first time since March. The change in contribution was a result of a larger upward contribution from the purchase of second-hand cars, where prices have potentially been boosted by increased demand as people, reportedly, look to reduce their reliance on public transport.

There were also reductions in the size of the downward contributions from both airfares and, to a lesser extent, the operation of personal transport equipment (including fuels and lubricants).

Average petrol prices stood at 113.3p per litre in September 2020, up from 113.1p in August but below 127.3p recorded in September 2019. Average diesel prices were 118.2p per litre in September, compared with 131.8p a year ago.

Robert Alster, CIO at wealth manager Close Brothers Asset Management, said: comments: “As the UK starts to experience a second wave, the employment outlook is weak and wage growth limited. Inflationary pressures are few and far between. While the Bank of England has made it clear that negative interest rates remain a part of its monetary toolkit, we’re not likely to see such measures called upon this year.

“The focus is still very much on ensuring that fiscal measures are given every opportunity to gain traction. But as the current crisis forces the treasury to step up again and again, the Bank of England may feel growing pressure to take action.”

The September inflation figure is used to decide the annual increase in business rates.

While retail, leisure and hospitality firms have been given a one-year business rates holiday, this is set to end on March 31 just before the new rate kicks in on April 1.

September’s CPI is also used in the calculation for state pensions, although the triple-lock rule means the payout will be the highest figure out of CPI, earnings growth for the year to July, or 2.5%.

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