INFLATION matched its record high last month, official figures revealed, hitting the Government with a hefty bill for increased state benefits and highlighting the tough conditions faced by households.
The rate of consumer prices index (CPI) inflation in September, which is used to determine next April’s rise in state benefits, rose from 4.5% to 5.2%, which equals the record high reached in September, 2008, the Office for National Statistics (ONS) said.
Benefit rates for 2012 are not formally unveiled until later this year, but this means the basic single state pension will increase by £5.31 to £107.46 a week, while the joint state pension will increase by £8.49 to £171.84.
Employment benefits, such as jobseeker’s allowance (JSA) and income support, are also calculated using the September CPI rate, meaning JSA will increase by £3.51 to £71.01 a week.
The higher-than-expected surge was driven by a jump in utility bills, as gas and electricity increased 13% and 7.5% respectively, following price hikes from major energy providers including Scottish & Southern Energy, E.ON, British Gas and Scottish Power.
The increase in state benefits will put more pressure on Chancellor George Osborne, who is battling to slash the nation’s budget deficit, as unemployment hit a 17-year high of 2.57m in the three months to August.
It will be the first time the uprating in benefits is calculated using CPI, rather than the retail prices index (RPI) rate of inflation, which rose from 5.2% to 5.6% in September, the highest rate in 20 years.
If the calculation was still based on RPI, the single state pension would have been £108.42 and the joint £173.36.
The CPI inflation rate also underlines the squeeze on household incomes, after figures last week showed weekly earnings grew at just 1.8%.
Housing, water, electricity, gas and other fuels increased 8.6%, the highest increase in 2½ years.
The ONS warned there would be further pressure from utility bills in this month’s figures, as price hikes from EDF and Npower are introduced.
Energy firm bosses agreed a number of measures on Monday aimed at reducing household energy bills, after a summit meeting at which Prime Minister David Cameron told them action was “absolutely vital”. Elsewhere, consumers were facing pressure from a record increase in communication costs, up 0.9%, which was driven by charges from mobile phones and cable telephones.
Air fares reported a 21% drop, but this compared to a larger 28% plunge last September, so this exerted further upward pressure on overall prices. Restaurant and hotel bills hit a record high, rising 4.7%.
The only downward pressure was from clothing prices, which rose 4.4% against a 6.4% record surge last year.
The figures are unlikely to overly concern the Bank of England, which has already forecast inflation to rise to 5% this year and recently increased its quantitative easing (QE) programme, in a sign that growth problems outweighed the threat inflation poses to the economy.
The Bank said it increased QE by £75bn to £275bn because, with economic conditions as they are, it expects inflation to drop below its 2% target in the medium term.
Prof Philip Booth, editorial director at the Institute of Economic Affairs, described this month’s increase in inflation as “particularly concerning”.
