Inflation set to cool again as food price rises ease

Official figures are predicted to reveal a decrease in Consumer Prices Index (CPI) inflation to 6.6% in September from 6.7% in August.

Easing food and clothing price inflation was expected to contribute to a fall in inflation last month (Yui Mok/PA) (PA Archive)

UK inflation is expected to have decreased slightly last month due to a slowdown in food and clothing price increases.

Official figures are predicted to reveal a decrease in Consumer Prices Index (CPI) inflation to 6.6% in September from 6.7% in August, according to a consensus of economists.

Wednesday’s inflation reading could be important in calculating how much benefits payments will increase next year, as well as outlining increases in some taxes, such as business rates.

The figure is expected to continue a similar trend to August and show a marginal drop against the previous month.

Nevertheless, policymakers will hope for a sharper-than-expected fall after the Bank of England hiked interest rates over the past year in an effort to quash inflation.

Analysts from Investec said they predict a slightly larger drop in the CPI rate, to 6.5%, due to a “further moderation in price pressures”.

Food prices, which have soared in recent months, are expected to report another slowdown in inflation, with the price of some products, such as butter and milk, dropping recently.

Clothing is also expected to contribute to the lower inflation rate, with an increase in discounting from shops in order to stimulate more sales.

However, these drops are due to be partly offset by increases elsewhere, such as higher fuel prices.

Fuel prices have ticked higher recently due to tightened supply from the Middle East, while damaged gas pipelines in Northern Europe and the conflict in Israel are set to put more upwards pressure on pricing.

September inflation is also due to have been impacted by a possible jump in services inflation.

This is likely to have been buoyed by a significant rise in private school and nursery fees.

The Government will once again have a keen eye on the inflation data as they hope to witness signs they are on track with their pledge to halve inflation in 2023.

In order to meet this pledge – which was one of five key commitments for the year – they will need inflation to be below 5.4% by the end of the year.

September’s reading will also be important to the Treasury in relation to state finances as it will provide a clearer idea of how much state benefit payments are due to increase next year.

Inflation-linked benefits, such as universal credit, and tax credits, are expected to rise in April next year by the rate of CPI inflation from this September.

A higher-than-expected rate of inflation is therefore likely to see increased costs for the Treasury.

Nevertheless, this outcome could also result in higher tax revenues, as some taxes are tied to the inflation rate for the month.

Business rates – the property tax paid by high street firms such as shops, pubs and offices – are due to increase in April based on this CPI reading.

Analysts have predicted that rates bills for company could rise by between £1.5 billion and £2 billion next year as a result.

Pension payments can also increase in line with the September figure, but this is not expected to be case this time around due to the “triple lock”.

The Government’s “triple lock” commitment means state pensions will increase by the highest of three figures: the inflation reading for September the previous year, average year-on-year earnings growth from May to July of the previous year, or 2.5%.

However, given earnings grew by 8.5% over the quarter to July against the same period a year earlier, this is due to be used for the rise in state pensions unless there is a shocking surge in the latest inflation figures.