Inflation rise puts squeeze on households
Despite the uplift, business leaders say there is still a possibility of a further cut in interest rates next month.
CBI Head of Economic Analysis and Surveys, Anna Leach, said: “Inflation was expected to pick up through this year as fuel prices are no longer falling. It’s still too soon for sterling’s recent depreciation to affect today’s inflation figures, however we do expect it to push up prices through the course of next year, which will hit the pound in people’s pockets.
“It is unlikely that today’s inflation rise will phase the Bank of England, who we still expect to cut the base rate in November, to support confidence and spending in the short-term.”
Martin Beck, senior economic advisor to the EY Item Club, said: “CPI inflation in September recorded its highest reading since November 2014. Today’s rise is likely to mark the beginning of a steep upward trend which will drive the CPI measure up to – and then above – the MPC’s 2% target in early-2017.
“The pickup was largely due to base effects, with last autumn seeing the peak of the drag from falling food, petrol and energy prices. However, there is evidence that inflationary pressures are also beginning to intensify.
“Petrol prices rose by 1.2 pence per litre on the month, while there are signs that core inflation is beginning to accelerate. We calculate that on a seasonally adjusted basis, core inflation was up 0.7% quarter-on-quarter in Q3, the strongest outturn since the end of 2012.
“The pickup in core inflation is likely to have been heavily influenced by the pass-through of the depreciation of sterling that we have seen over the past year. These pressures are likely to intensify over the coming months, particularly as the impact of the post-referendum sterling slump begins to be felt.”