INFLATION hit a 16-year high in September, but economists believe the year-long spiral in the cost of living could soon be over.
They said the Consumer Prices Index (CPI), which hit 5.2% last month because of soaring gas and electricity bills, would decline rapidly as the economy slows.
September’s CPI was the highest since the benchmark was introduced in 1997 and the biggest since March 1992 by historic data. A year ago, it stood at 1.8%.
After energy price hikes, and an earlier round of increases in January, electricity prices are up 30% and gas costs up almost 50% year on year.
Howard Archer, chief UK and European economist at Global Insight, said CPI was “almost certainly now at its peak, or very near to it”.
“Very weak economic activity, rising unemployment and extended tight credit conditions will increasingly dilute underlying inflationary pressures,” he said.
The Government also faces paying out billions more in benefits and pensions after the headline Retail Prices Index (RPI) reached 5%.
September’s RPI, which was last higher in July, 1991, is used by the Government to calculate pension increases for the coming year.
Pensions usually increase by 2.5% or headline RPI, whichever is higher. A 5% rise in the current £47bn cost of the basic state pension could add more than £2bn to government costs.
