Inflation edges up after Eat Out to Help Out tempts diners
Inflation edged higher last month as the Eat Out to Help Out scheme boosted the Covid-battered restaurant sector, official data showed.
The annual inflation rate, measured by the consumer prices index (CPI), grew 0.5pc in September – more than the near five-year low of 0.2pc in August – according to the Office for National Statistics (ONS).
Prices for dining out rose as the government discount scheme lured people to restaurants and cafes, while air fares fell less than usual for the end of the school summer holidays because fewer people were travelling abroad.
Demand for used cars also drove up prices as consumers sought alternatives to public transport. Hairdressers hiked their prices, reflecting higher demand when restrictions were initially eased and to cover the cost of protective equipment.
The September numbers are important because they are used to calculate benefits, state pensions and business rates. The first will rise only 0.5pc next April – far short of this year’s 1.7pc increase.
Hard-hit retail, leisure and hospitality firms are currently on a one-year business rates holiday, but this is set to end on March 31 – just before the new rate kicks in on April 1.
The CPI is not the only factor used to decide the increase in state pensions because the triple-lock rule means they rise by the highest figure of inflation, earnings growth for the year to July or 2.5pc.
Because earnings fell 1pc, pensions are set to rise 2.5pc, bringing the increase in the basic state pension over the past 11 years up to 41pc, compared to 25pc if it had been indexed in line with inflation or 22pc if it had been pegged to earnings.
Carl Emmerson, deputy director of the Institute for Fiscal Studies, said this may encourage ministers to abandon the triple lock sooner.
“Periods of turmoil such as this ... lead to a ratcheting up in the value of state pensions while living standards of the working age population suffer,” he said. “At some point this will prove unsustainable.”
James Smith, of ING, said more stimulus from the Bank of England was likely because prices rose only for certain items, and it is uncertain whether the crisis will be inflationary overall, given the likely spike in unemployment when the furlough scheme ends and as Brexit jitters weigh on consumer confidence.
“We expect policymakers to add an extra £100 billion to its asset purchase programme, allowing purchases to continue to early summer at the current rate,” he said. “However, it looks unlikely that this will be coupled with a shift into negative rates at this stage.”
