- Inflation stuck at 6.7% for the second month in a row
- Rising prices at the pump primarily behind the surprising stickiness
- Food inflation falls month on month for the first time in two years
Danni Hewson, AJ Bell head of financial analysis, comments on the latest UK inflation figures:
“September’s stickiness rather ruins the narrative. UK inflation is not making a slow but sustained backtrack, it’s got trapped between the push and pull of prices at the pump and those on supermarket shelves.
“For households the current situation probably feels a bit like being given a bonus then having it all taxed away. Anyone who’s had to fill up their vehicle in the last few weeks can be forgiven for uttering a few expletives as the numbers kept climbing up, whilst those who’ve stocked up on milk, eggs and cheese should have had a more pleasant experience.
“Price volatility happens all the time but at the moment it’s raising big questions about whether the government will meet its target of halving inflation by the end of the year and, more importantly, how it might impact Bank of England policymakers ahead of their next interest rate decision.
“There are no easy answers here. On the one hand we know the impact of energy price hikes should finally wash through next month, but the question is how much of that cooling affect will be tempered by continued global uncertainty which is pushing up the price of oil.
“And with wage growth now outstripping inflation people might feel they’ve got a bit more cash to splash on a night out at the theatre or a night in a hotel – a decision which could give the green light for these sectors to raise prices once again.
“Because there is a lag, some businesses held off on raising prices and are now finding they have no choice but to do so, especially if customers keep on coming.
“And there is also a lag when it comes to the impact of interest rate hikes, a lag which would have been at the forefront of the minds of MPC members last time out and is likely to continue to influence their decision-making next month.
“To that end markets are still pretty wedded to the notion that rates won’t change next month, but there is a degree of uncertainty that wasn’t present yesterday and that’s reflected in share prices this morning.”
