Consumer prices in Britain rose 10.1 percent in September from a year earlier, continuing their steep climb as the nation grapples with rapidly rising food prices, high energy costs and uncertainty. politics.
The annual rate of inflation returned to its fastest pace since 1982, matching the pace set in July. It rose from 9.9 percent in August. Inflation was expected to peak next month, at a slightly higher rate, but a change in government policy keeping household energy bills low has made the future path of prices even more uncertain.
Prices were pushed up by large increases in the cost of food and, to a lesser extent, in restaurants and hotels, in September. Food prices rose 14.5 per cent last month from a year earlier, the biggest annual rise in more than 40 years, according to the Office for National Statistics. High energy costs continued to help inflation grow at its fastest pace in decades. But price increases are widespread across goods and services, so core inflation, which excludes food and energy prices, rose 6.5 percent from a year earlier, versus 6.3 percent in August.
It’s another sign of the stickiness of inflation facing politicians and lawmakers around the world. That is encouraging central bankers to seek steeper increases in interest rates, in an effort to send a strong message that they will bring inflation down again and not allow rapid price increases to take root in the economy.
But ever-changing fiscal policies, as governments try to support households through cost-of-living increases, also complicate the picture.
Just under six weeks ago, Britain’s Prime Minister Liz Truss pledged to freeze home energy billsone of the biggest sources of inflation increases, starting in October for the next two winters. This week, much of Mrs. Truss’s economic agenda was scrapped by Britain’s new finance minister, Jeremy Hunt, as he tried to restore calm to financial markets, which had apparently lost faith in the government’s fiscal credibility. One casualty of Mr. Hunt’s policy change was Ms. Truss’s historic policy on energy bills; Britons are now guaranteed a freeze on their bills only until April. After that, the government said it would come up with a less expensive and more targeted plan to help people with their bills.
If households were to revert to paying a price cap set by market prices through Ofgem, the government energy regulator, the overall rate of inflation would rise by about five percentage points, economists at Pantheon Macroeconomics wrote in a note. research this week. But, they said, it’s too early to forecast what’s most likely to happen, as the government is still devising a new plan to help with bills beyond April.
the Bank of England has been raising interest rates since December to tackle inflation. In its last two meetings, it raised rates by half a percentage point, double its previous moves, amid signs of mounting inflationary pressures, especially in the labor market, where wages are rising and large numbers of people are are out of the labor force.
While the central bank is expected to keep raising interest rates for several more months, analysts are wondering how high rates may get and how long the increases will continue as the British economy slows. High inflation is putting pressure on household budgets and there are growing predictions that the economy will contract next year amid a decline in consumer spending.
The International Monetary Fund forecast that the British economy would go from 3.6 percent growth this year to a 0.3 percent contraction next year “as high inflation reduces purchasing power and tighter monetary policy affects consumer spending and business investment.
Traders are currently betting that the central bank will raise interest rates above 5 percent next year, from 2.25 percent.