Inflation “paused for breath” in September before it races ahead at a fiery pace in the coming months.
Prices were 3.1 per cent higher than they were a year ago last month, according to the Office for National Statistics (ONS).
The rate of inflation edged back slightly from August’s 3.2 per cent clip and was slightly lower than analysts’ expectations.
The lower-than-expected reading was mainly due to the Eat Out to Help Out scheme dropping out of the ONS’s inflation calculations over the last month. The scheme artificially lowered prices for restaurants, which skewed August’s reading.
Even stripping out the base effects of the scheme, inflation is still running over one percentage point higher than the Bank of England’s target.
Financial markets moved sharply this week to price in a first rate hike in over three years for next month.
Experts warned that though price rises cooled, they will take off again very soon.
Thomas Pugh, economist at RSM UK, said: ‘Inflation paused for breath in September… but this won’t last long. Surging energy prices and supply-chain disruptions will push inflation to a peak of five per cent by April 2022.”
Price were driven higher by transport costs soaring in September, reflecting the petrol crisis that plague the country during the month. Average petrol prices climbed to £1.35 per litre in September, up from £1.13 pence per litre a year earlier, the largest increase in the month since 2013.
The cost of used cars has also jumped due to consumers seeking substitutes to new vehicles amid a global chip shortage restriction production. Second hand car prices are 21.8 per cent since April.
With inflation is expected to trend higher in the coming months, experts warned inflationary expectations could become embedded into households and businesses’ psyche, which may prompt the Old Lady to hike rates soon.
Yael Selfin, chief economist at KPMG UK, said: “While some of the current increase in prices is likely to prove transitory, there is growing concern that it could become engrained into wage and price expectations.”
“To counteract this, an increasingly hawkish stance from the Bank of England could see an early rise in interest rates.”
Paul Dales, chief UK economist at Capital Economics, expects the hike in utility prices to push October’s inflation reading to four per cent.
Chancellor Rishi Sunak said: “Global shocks have pushed up prices around the world, and we are working with businesses and international partners to address these pressures.”