Cost of living falls – just in time for bumper energy bill rises

Rising energy bills and soaring food costs are set to pile more pain on household budgets despite the cost of living falling to its lowest level for nearly three years this week.

September's figures, published on Tuesday, are expected to show the official Consumer Prices Index inflation benchmark sliding sharply to 2.2 per cent, the lowest since November 2009.

But the recent falls in the CPI – driven by rising utility costs a year earlier not repeated so far in 2012 – are about to come to an abrupt halt. Scottish & Southern Energy, the UK's second biggest provider, is raising prices by 9 per cent tomorrow, while British Gas and npower have also announced rising tariffs. The rest of the UK's "big six" providers, E.ON, Scottish Power and EDF, are certain to follow.

September's CPI will also be used to uprate benefits for the coming year, leaving millions on benefits facing a much smaller 2.2 per cent rise in payments, less than half the 5.2 per cent received last year.

The increase in energy bills just when households are beginning to crank up the heating comes against a backdrop of a poor summer as well as droughts in Russia and the US which threaten to send global food prices surging higher.

Chris Crowe, a Barclays Capital economist, warned that CPI – the Bank of England's target measure – could peak at 3 per cent again next year. He said: "Gas and electricity accounts for around 4 per cent of the CPI basket, so 9 per cent rises could add as much as 0.4 percentage points to inflation."

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