Prices are rising at their fastest pace in nearly two years as sterling's dramatic post-referendum demise looks set to bite consumers over the coming months.
Inflation came in at one per cent in September on the consumer prices index (CPI), the Office for National Statistics (ONS) declared this morning – a big leap from the 0.6 per cent recorded for the month of August. It was also above expectations for a rate of 0.9 per cent and the highest level since November 2014.
Higher fuel prices and rising restaurant bills were the biggest contributors to the inflation jump, while core inflation, which strips out the most volatile and sterling-sensitive products such as fuel and food, also jumped from 1.3 per cent to 1.5 per cent.
A separate index of how much businesses pay for raw materials and other input goods – the producer prices index (PPI) – came in at 7.2 per cent, its second highest level in more than three years after rocketing to 7.6 per cent last month.
Despite the climb, the ONS said it was still awaiting "explicit evidence" that the rise in inflation was a direct consequence of sterling's 17 per cent depreciation since the referendum. However, economists were united in their assessment that the weaker pound would push prices up – since UK-based firms and shoppers have to pay more for goods from abroad – over the coming months.
Andrew Sentance, former monetary policy committee (MPC) rate-setter said today's figures were "just the tip of the inflationary iceberg" and suggested consumer spending would suffer as a result of higher prices.
Inflation is expected to breach the Bank of England's two per cent target at some point next year before rising towards three per cent by the end of 2017. Samuel Tombs at Pantheon Macroeconomics pencilled in a peak of nearly 3.5 per cent by the time the full effects of sterling's slide are factored in. With wages growing at between two and three per cent he added: "A renewed real wage squeeze awaits".
World First's chief economist Jeremy Cook said the biggest jumps in inflation were likely to occur after Christmas, since firms would be reluctant to hike prices as the most important months of the year approach, and some may still have pre-referendum hedging arrangements in place to soften the blow of the weaker currency.
Paul Hollingsworth, economist at Capital Economics said the Bank of England would not be "troubled" by the jump in inflation, stating that even fast price rises "do not rule out the possibility of another interest rate cut in November."