The rising cost of clothing, hotel stays and petrol has fuelled the highest rate of UK inflation in almost two years – but there remain ways you can cut your costs.
The Office for National Statistics (ONS) this morning confirmed the Consumer Prices Index (CPI) rate of inflation had risen by 1% in the year to September 2016, compared with a 0.6% rise in the year to August.
Inflation is the rate at which the cost of goods and services bought by households rises or falls – it's estimated by looking at the prices of a 'basket' of 700 goods and services, including clothes, food and furniture.
What this latest update from the ONS essentially means is that the cost of household goods and services has increased and many experts believe yet more pain could be on the way for consumers in the coming months as a weak pound means the cost of imported goods is on the rise.
It would be logical to suggest the increase in inflation, which is above previous market predictions of 0.9%, has been triggered by the recent plummeting value of the pound following the Brexit vote. However, the ONS claims there's "no explicit evidence" that the weaker pound was causing prices of everyday goods to rise.
According to the ONS, the main drivers behind the change in the rate were increasing prices of clothing, overnight hotel stays and petrol and diesel. Although the price of gas remained unchanged, it contributed to the overall rate increase, while the prices of air fares and food fell.
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Usually, the September CPI inflation figure is important as a number of working-age benefits are increased in line with it, to keep up with the cost of living.
However, as part of its bid to cut £12 billion from its annual social security spending, the Government said in July 2015 it was freezing most working-age benefit and tax credit rates.
So benefits including jobseeker's allowance, child benefit and housing benefit are not changing. Only a few benefits will rise by 1%, including disability benefits such as those that form part of tax credits. Use our Benefits Checker to see if you're eligible.
The September figure is also a key part of the basic state-pension calculation. This payout is protected by a 'triple lock' guarantee, which ensures the state pension rises every year by the highest of these three figures:
- September CPI measure of inflation;
- Average earnings growth; or
As the September CPI is only 1%, the state pension will rise by whatever is higher out of earnings growth or 2.5%.
Elsewhere, the Retail Prices Index measure of inflation, which includes housing costs, has risen to 2% in September from 1.8% in August.
Will household costs continue to rise?
We're getting into crystal ball territory here, but a number of industry experts have already suggested that UK consumers should brace themselves for further increases in household costs over the rest of the year.
Russ Mould, investment director at AJ Bell, says: "Today's rise in inflation is the first real evidence of Brexit hitting people's wallets as the price of restaurants, hotels, transport and alcohol starts to rise.
"'Marmitegate' was the sign of things to come as the cost of imported goods and raw materials from abroad increases due to the weak pound, and this could lead to further price rises over the coming months. This would have a real impact on the spending power of people's salaries and could be the first time they have felt any pain from the vote to leave the EU."
Nawaz Ali, UK currency strategist at Western Union Business Solutions, adds: "The worry is that despite today's sharp rise in inflation and one-way expectations for the foreseeable future, the Bank of England will still consider cutting interest rates to protect economic growth and employment."
Calum Bennie, savings expert at savings and ISA provider Scottish Friendly, says: "Almost four months on from the Brexit vote, the economic landscape for the UK is becoming clearer and today's significant increase in inflation is a sign of things to come. The recent dramatic fall in sterling means that even higher living costs are on the horizon so prices will only be heading in one direction and that's upwards."
How can I avoid paying more than I have to?
There are a number of ways you can try to swerve the rising cost of household items and services.
At MoneySavingExpert.com we provide extensive guides on how to save yourself a pretty penny on a wide range of products and services. Here are a few ideas to get you started:
- Pay less for clothes by deciphering the hidden discount codes on shop's price tags – This way you can pay less for the clothes you want. Check out our 15 Shopping Secrets the stores don't want you to know for more on how to save money on clothing.
- Don't be duped into buying brand names in supermarkets – Spending more money doesn't always guarantee better quality – take our 'Downshift Challenge' and save yourself a packet. Read our Supermarket Shopping Tips guide for more.
- Never assume hotel or hostel prices are fixed – Book right and massive savings are possible on rooms. Check in with our Cheap Hotels guide for full info.
- Drive down your petrol and diesel costs by buying in the right place, in the right way – Pump prices have been steadily rising since August, and last week the Petrol Retailers' Association predicted they'd jump by up to 5p by the month end. But you can cut the cost at forecourts by reading our Cheap Petrol and Diesel guide.
- Switch your energy supplier as a matter of course – Sign up to our Cheap Energy Club and we'll take the hard work out of switching. Just tell us what your current energy tariff is and we'll tell you if you're overpaying.