U.K. Inflation Accelerated Again in September, Hitting 10.1%

By Geoffrey Smith

Investing.com -- The U.K.'s inflation rate crept back above 10% in September, as food prices in particular continued to squeeze household incomes and keep the pressure on Prime Minister Liz Truss and the Bank of England.

The consumer price index rose 0.5% from August, while core consumer prices rose 0.6%, both numbers a little higher than expected. That drove the headline rate up to 10.1% from 9.9%, while the core rate rose to 6.5% from 6.3%.

The numbers contained a crumb of comfort in that producer price inflation, which translate into consumer inflation with a modest time lag, slowed from August, although by less than expected. Factory gate prices rose only 0.2%, bringing the annual PPI down to 15.9% from 16.4%.

In addition to food, the rise in prices was driven largely by housing costs, as the Bank of England's interest rate hikes increasingly fed through into mortgage costs.

Some relief came from the usual seasonal drop in airfares at the end of the summer holidays, and from a further drop in vehicle fuel prices, with both petrol and diesel falling for a third month.

However, with the downward trend in crude oil prices having been stopped by the OPEC+ production cut announcement earlier this month, the chance for further relief from this direction looks limited.

Samuel Tombs, U.K. analyst with Pantheon Macroeconomics, said that the CPI looks on course to peak in October, when regulated household energy prices will rise sharply. Thereafter, he noted, base effects from last year will combine with weakening demand and easing supply chain bottlenecks to bring the inflation rate down through the winter, falling to 6% by April.

That presumes that the U.K. doesn't perform any more radical policy turns in the next few months, after a chaotic couple of weeks in Westminster.

What happens after April, Tombs noted, will depend largely on how world energy prices - and the government's response to them - evolve. Jeremy Hunt, the new Chancellor for the Exchequer, signaled on Monday he wants to cut government support for energy bills after the current six-month safety net expires, something that would lead to another big rise in energy bills - albeit at a time when seasonal effects would mitigate that increase.