UK inflation rate slows to 2.2% in September, ONS says

Pensioners' views on how inflation affects their disposable income

The pace of price rises in the UK slowed in September, pushing the inflation rate down to its lowest level for nearly three years.

The Consumer Prices Index (CPI) measure of inflation stood at 2.2%, down from 2.5% in August.

The CPI level in September is usually used to work out the rise in a range of benefits from Jobseeker's Allowance to income support in April next year.

But the basic state pension will rise by a minimum of 2.5%.

This is the result of a government guarantee and would see the state pension increase by at least £2.69 a week.

The Office for National Statistics (ONS) said that the Retail Prices Index (RPI) measure of inflation, which includes mortgage payments, stood at 2.6% in September down from 2.9% the month before.

The Treasury said September's fall would bring "welcome relief to the budgets of families and businesses".

Energy bills

The final level at which various benefits will rise in April will be decided by Chancellor George Osborne and announced in December. However, he is guided primarily by the September CPI inflation rate.

Benefits usually affected by September inflation

  • Jobseekers' Allowance
  • Income support
  • Most income tax allowances
  • National Insurance thresholds
  • Inheritance tax allowance
  • Capital Gains Tax allowances
  • Disability benefits
  • Maternity benefits
  • Income support
  • Incapacity benefit
  • Child tax credit
  • Working tax credit
  • Child benefit

The CPI level was much lower than the rate seen in September 2011, when it stood at 5.2%.

This meant that a variety of benefits, such as disability and maternity benefits, rose by 5.2% in April this year. So, the uprating of these benefits is likely to be much lower in April 2013.

The chancellor has already said that he is likely to look again at the rise in Jobseeker's Allowance, as he was keen to see those in work seeing greater reward than those out of work.

'Squeeze on households'

The CPI rate of inflation was at its lowest rate since November 2009. The slowdown in inflation was the result of gas and electricity price rises in 2011 falling out of the comparison calculation.

However, the ONS said the recent spate of energy bill increases would put pressure on inflation as time went on. This was likely to lead to similar increases in inflation as seen last year, when utility price increases added 0.45% to CPI, the ONS said.

Rising fuel prices also put upward pressure on CPI in September, when petrol rose by 3.9p a litre between August and September compared with a fall of 0.3p a year ago.

A number of groups have pointed to the energy price rises as a worry for future inflation levels.

INFLATION CALCULATOR

Details from inflation calculator

"While we expect inflation to fall in 2013, the expected increase in consumer and retail price inflation in October is concerning," said David Kern, chief economist at the British Chambers of Commerce (BCC).

"Some of the recent announcements of increases in utility prices and university tuition fees will only affect the October index.

"Falling inflation benefits the UK economy as it reduces the squeeze on businesses and consumers and underpins domestic demand at a time of fiscal austerity and weak growth in the global economy."

The Labour Party said it would act to put the energy market under greater scrutiny.

"This fall in the inflation rate is welcome, but families and pensioners will face a real squeeze from big hikes in energy and food prices in the coming months," said shadow Treasury minister Cathy Jamieson.

"Our jobs plan includes a temporary VAT cut and we would act on soaring energy bills by introducing a tough new energy regulator with the power to force energy companies to pass on savings to consumers, automatically put over-75s on the cheapest deal and simplify their tariffs."

Commentators have also suggested that rising food prices could also push inflation back up.

Meanwhile, Brendan Barber, general secretary of the TUC, said: "This fall in inflation is welcome. However, these figures should be seen in the context of continuing real wage falls, which have meant families getting poorer every month for the last three years."

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