Inflation dips despite soaring fuel costs

Inflation rose by a slightly lower than expected 3.1pc in September despite rising fuel and transport costs as prices fluctuated following the end of the Eat Out To Help Out scheme last summer.

The increase, down from a 3.2pc increase in August, is still firmly above the Bank of England’s 2pc target. Economists expect a significant acceleration in the coming months, led by the rise in the energy price cap in October.

Mike Hardie, head of prices at the ONS, said furniture, household goods and food are among the categories contributing more to inflation this year, while factory and logistics costs were climbing.

“The costs of goods produced by factories rose again, with metals and machinery showing a notable price rise,” he said. “Road freight costs for UK businesses also continued to rise across the summer.”

Petrol prices were up 19pc amid panic buying, with diesel up 16.3pc.

Second-hand car prices jumped by almost a fifth as manufacturers struggle to make enough new vehicles given the global shortage of computer chips.

For similar reasons fridges and freezers cost almost 8pc more in September than a year earlier, while small household electronics are up by almost one-tenth.

Manufacturing and shipping issues also contributed to a rise of more than 10pc for furniture.

Food prices increased for the second consecutive month, up 0.8pc on the year.

Household electricity was up 5.8pc on the year but gas was 4pc cheaper last month than it was a year earlier - something which is changing as the cap goes up by more than 12pc this month following spiralling costs in wholesale markets.

More prices rises could be on the way as manufacturers reported their input costs, led by energy, jumped by more than 11pc in September, much faster than the 6.7pc rise in prices charged to customers.

Paul Dales at Capital Economics said inflation could reach 5pc next year.

“This feels a bit like the lull before the storm as the 12pc rise in utility prices on October 1 will probably lift inflation to around 3.8pc in October,” he said.

“We think inflation could then climb to around 5pc in April next year due to a further rise in utility prices and the upward influence from global/domestic product shortages.”

Rishi Sunak, the Chancellor, blamed the world economy.

“Global shocks have pushed up prices around the world, and we are working with businesses and international partners to address these pressures,” he said.

“We are supporting people with the cost of living, including through a new £500m support fund to help vulnerable households, the energy price cap, and assistance with energy bills through the winter.”

September’s inflation figure is used to set the increase in the state pension, meaning they will rise by 3.1pc next year.

It is also used to determine the jump in business rates, leading the British Chambers of Commerce to call for support in next week’s Budget.

“Despite enduring the deepest recession on record, businesses are now facing a punishing rise in business rates in the next financial year because of soaring inflation,” said Suren Thiru, the business group’s head of economics.

“The Chancellor should therefore use the upcoming Budget to abandon the up-rating of business rates for at least the next financial year to avoid severely aggravating already diminished business cashflow and further damaging our high streets and town centres.”