Inflation expected to reach highest level since January last year

inflation It is expected to rise to a 21-month high due to increased pressure chancellor And Bank of England.

Economists have predicted that consumer price index (CPI) inflation will reach 4% in September. National Statistical Office (ONS) revealed its latest data on Wednesday.

This will be the highest level since January 2024.

Inflation reached 3.8% in July and August amid pressure from rising food prices, as companies highlighted increased tax and labor costs.

Economists at Pantheon Macroeconomics predict that higher motor fuel and airfare prices will help push inflation up to 4% in September.

It also pointed to “strong apparel prices” for the month, but indicated that this could be offset by “slightly softer” service price inflation.

Economists have also suggested that increased private school fees may also have contributed.

Some schools were expected to increase fees from the start of the new school year due to higher costs for parents after the government introduced a 20% VAT rate for private school fees at the start of the year.

The projected surge in inflation in September could represent the peak of rising cost of living for UK households.

The Bank of England had previously forecast inflation would reach around 4% in September before falling steadily.

Rob Wood of Pantheon Macroeconomics said he expected inflation to “slow only slightly” in the coming months, falling to 3.8% by the end of the year.

Other economists have been more optimistic Investec Suggesting it expects rates to reach 3.9% in September before declining.

Any increase would still highlight a challenging economic backdrop for the Bank of England as it seeks to bring inflation down to its 2% target rate.

On Friday, the bank’s top economist Hugh Pill urged other rate-setters to be “more cautious” about future cuts due to concerns that inflation remains at extremely high levels.

A further rise in inflation could also be a major concern for the Chancellor Rachel ReevesA month before his autumn budget.

The September inflation rate is typically used to set the level of increases for many benefits such as universal credit, tax credits and disability benefits.

This rate is also a key part of the pension triple lock, which is used to decide how much pensions will rise next April.

However, the increase is based on either this inflation rate, average income growth between May and July, or 2.5%.

Given that earnings growth was confirmed at 4.8%, the inflation rate will only be used if there is a shock bullish move beyond this level.

A rise in inflation in September could result in higher-than-expected spending, when the Chancellor is already looking to plug a black hole in the state finances.

Although higher inflation will also contribute to higher tax take, the September rate is also commonly used to calculate some annual tax increases such as business rates.