UK inflation returned to its high of 10.1% in September having dipped to 9.9% in August, suggesting that the rising cost of living shows no signs of abating.
The latest reading matches the highs in July this year and are the highest levels since the Office for National Statistics began collecting consumer price index (CPI) data in 1997.
The rising price of food and non-alcoholic beverages made the biggest contribution to September’s spike of inflation, with costs for such items increasing 14.6% over the past year.
Annual inflation rates for the past 10 years
Source: ONS
Myron Jobson, senior personal finance analyst at interactive investor, said: “These types of inflation can be even stickier because consumers are resigned to paying it as they are essential.”
Hugh Gimber, global market strategist at JP Morgan Asset Management, agreed that inflation pushed by food and beverages is particularly difficult to amend.
“This morning’s report clearly highlights how price pressures have now spread to non-discretionary spending items (such as food), making it far more difficult for consumers to change their spending patterns to avoid the squeeze,” he said.
Cost hikes from these products may be unavoidable to consumers, but the declining price of fuel helped to minimize the CPI rise. Fuel prices were still up 26.5% year-on-year in September but dropped from 32.1% the month before.
Inflation rates over the past 10 years
Source: ONS
In response to these new CPI figures, Gimber said that the Bank of England (BoE) “needs to demonstrate that it is serious in tackling inflation” with a rate hike of 75 basis points the “bare minimum that will be necessary”.
He added: “Any decision on balance sheet reduction will need to place far more weight on financial stability. Bond markets are unlikely to tolerate significant sales of gilts, and as such we see a high likelihood that quantitative tightening plans are parked in the near term.”
Decisive action may be needed, but the central bank will struggle to deliver a significant rate hike without hurting consumers, according to Neil Birrell, chief investment officer at Premier Miton.
He said: “The Bank of England would be looking at a full 1% increase at its next meeting if it weren’t for the pain the consumer is feeling and, given the reversal of government policy, that is only going to get worse.
“This inflation number leaves the Bank between a rock and a hard place.”
With the British Chambers of Commerce forecasting that inflation will reach 14% over the next quarter, investors need to be especially savvy in how they protect their savings, according to Colin Dyer, financial planning expert at abrdn.
He said: “It’s time for savers to take matters into their own hands if they want to see growth with their finances.
“It’s more important than ever for people to plan ahead and consider ways to mitigate the impact of inflation on their hard-earned savings. This will be particularly key for those relying on cash savings, like retirees, as they will be seeing those savings loose real term value as inflation increases.”
Likewise, Jobson reminded investors that the dramatically rising cost of food and beverages could mean that consumers are being hit with inflation levels higher than the CPI index in their personal lives.
“It is important to remember that the headline inflation figure can dramatically differ from your own personal inflation number,” he added.
“Any savings you can make now will help you build up reserves for winter when you’ll really need it most - but that’s easier said than done in a cost-of-living crisis.”