BRITISH household finances face a futher squeeze as inflation hits a new five-year high.
Figures from the Office for National Statistics (ONS) said that the Consumer Price Index (CPI) hit 3 per cent per cent in August – its highest level since early 2012.
Wages rose at an annual rate of 2.1 per cent in the three months to July, meaning workers are seeing the value of their pay packets decrease.
Households have been feeling the pinch as the Brexit-hit pound bumps up everyday prices and wage growth tracks behind inflation.
ONS head of inflation Mike Prestwood said: “Food prices and a range of transport costs helped push up inflation in September.
“These effects were partly offset by clothing prices that rose less strongly than this time last year.”
The jump in CPI leaves Bank of England Governor Mark Carney on the brink of having to write a letter to Chancellor Philip Hammond explaining why inflation is rising so rapidly.
The Government has set an inflation target of 2 per cent, with protocol dictating that Mr Carney must contact the Chancellor if inflation exceeds 3 per cent or falls short of 1 per cent.
The ONS said food and non-alcoholic drinks rose by 0.8 per cent month-on-month in September after falling by 0.1 per cent over the same period last year.
On an annual basis, prices rose by 3 per cent last month, its highest level since October 2013 when it climbed by 3.9 per cent.
WHAT HAPPENS WHEN INFLATION RISES?
PRICES will go up for most things – clothing, food, travel – making the cost of living a bit more expensive:
These rises have been fuelled by the weak pound and it means those on the lowest incomes will be hit hardest.
Here’s how you can protect yourself against rising inflation:
- Check you’re on a fixed rate energy tariff (one that guarantees the price you pay per unit) and if not switch
- Make sure your savings are earning an interest rate that’s higher than the rate of inflation – otherwise they’ll lose buying power over time – you might need to think about high interest current accounts
- Shop around for food and fuel so you’re not paying any more than you need to
- Check whether you could cut your mortgage repayments by switching to a fixed rate deal if you’re on your lender’s standard variable rate
Transport costs also put upward pressure on the headline rate in September after recording a smaller month-on-month fall of 1.3 per cent in contrast to a drop of 2.3 per cent in 2016.
Fuel prices also pushed higher, with petrol and diesel both stepping up by 2.5p on the month to 118.2p and 120.1p respectively.
The Consumer Price Index, including owner-occupiers’ housing costs (CPIH), was 2.8 per cent in September, up from 2.7 per cent in August.
CPIH is the ONS’s preferred measure of inflation, which includes costs associated with living in, maintaining and owning a home.