For millions of people – pensioners and those eligible for state benefits – last month’s double-digit inflation figure is the one that really matters.
Each year, the government uses the September increase in the cost of living as measured by the consumer prices index to calculate by how much pensions and benefits will rise the following April.
Under the triple lock, pensions are uprated by one of three measures: the annual inflation rate, average earnings growth or 2.5%. This year, inflation is markedly the highest at 10.1%, with average earnings lagging at 5.5%.
So it was big news when word got out this week that Jeremy Hunt’s austerity drive could involve abandoning the triple lock and saving the Treasury £5.6Bbn by linking next year’s pension increase to earnings rather than prices.
The rumour proved short-lived. Liz Truss popped up at prime minister’s questions to say she was “completely committed” to the triple lock. That means someone eligible for a full state pension will get an increase of close to £1,000 a year from April.
It is not hard to see why Truss considered ditching the triple lock a U-turn too far. Pensioners voted overwhelmingly for Boris Johnson at the 2019 general election and are the Conservative party’s core constituency.
Tellingly, however, the government has failed to give a similar cast-iron pledge to uprating working-age benefits – such as universal credit – in line with prices, and, as things stand, most of them look likely to be raised in April by average earnings. According to the Resolution Foundation thinktank, that would save Hunt £2.4bn but make life even tougher for households already struggling to cope with the rising cost of energy and fuel.
A breakdown of the latest inflation figures from the Office for National Statistics provides evidence that the highest annual price rises in 40 years is having a disproportionate impact on the poorest. Less well-off households spend more of their budget on food, and food prices have risen by more than 14% in the past year.
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There is some tentative evidence that inflation – while still likely to rise further this month as a result of higher energy bills – could be close to its peak. The annual increase in motor fuels dropped from 32.1% to 26.5%, reflecting lower global oil prices. Producer prices, which give an indication of the prices consumers may face in the months to come, also eased back slightly.
Less good news was that annual core inflation – price rises for goods and services excluding fuel, food, alcohol and tobacco – continued to pick up, rising from 6.3% to 6.5% in September.
The Bank of England is highly sensitive to movements in core inflation, so despite Hunt’s U-turn on tax increases, its monetary policy committee looks likely to raise interest rates from 2.25% to 3% when it meets at the start of November.