Inflation: highest for 40 years but PM says triple-lock to stay

Prices of goods are rising at their fastest rate for 40 years, driving the beast of inflation back to double digits.

After UK inflation dipped slightly to 9.9% in August, the latest ONS figures for September reveal that it rose to 10.1% – slightly higher than the forecast 10%. 

The latest cost of living increase is driven in large part by the soaring price of staple foods. Food inflation has jumped by 14.8% – the highest since at least 1989. Low-fat milk is over 40% more expensive than a year ago, while the price of vegetable fats and cereals have shot up by over 30% and 29% respectively. The war in Ukraine – a key grain exporter and fertiliser producer – has played a major role in driving up prices at the supermarket tills. 

One slightly more positive takeaway from the new figures: crude oil prices actually fell in September. On a less positive note, inflation is forecast to jump even higher in October to around 11% thanks to the increase in energy prices this month. 

The September inflation figure is especially significant because it’s the one used by the Treasury as the benchmark to uprate state pensions and benefits in April. 

However, there was some relief today for pensioners. Liz Truss confirmed at PMQs that pensions are off the table for cuts. “We have been clear in our manifesto that we will maintain the triple lock and I am completely committed to it and so is the chancellor,” said the PM, contradicting a Number 10 spokesperson who said just yesterday that the government could no longer guarantee that the triple lock was safe. 

Only this time last week Truss was standing at the dispatch box committing to no spending cuts so pensioners may only feel partly reassured. Commitments and promises seem to be over-turned on a daily basis. There’s still a danger that Truss has made another confident assertion, which the PM in all but name will soon overrule. 

By renewing the pledge to uprate pensions in line with inflation, Truss will come under pressure to take the same stance on benefits – something Sunak had promised to do as Chancellor – to ensure the poorest families don’t go hungry or cold this winter. According to research from the Legatum Institute, choosing instead to only uprate benefits in line with earnings would send another 450,000 people in Britain into poverty. 

The IFS estimates that the poorest tenth of the UK population are expected to face an average inflation rate of 14% compared to 10% for the richest tenth, since poorer households tend to spend a larger proportion of their income on non-luxury goods such as staple food and energy – the items which are the main drivers behind rising prices. 

Another looming worry is the Chancellor’s announcement that the energy guarantee scheme will end in April as opposed to lasting two years. Not only was the package predicted to tame headline inflation, but scrapping it means those already struggling with the cost of living crunch could face energy bills of over £4500 by next spring. 

This overall picture makes a bigger increase in interest rates – perhaps by 0.75% – look increasingly likely when the Bank of England next meets in November. And many economists are now predicting that interest rates will rise to a peak of 5% in the first half of next year. Tearing up the mini-budget has calmed markets, but anyone with a mortgage still faces a bumpy ride ahead. 

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