THE UK’s rate of inflation remained unchanged last month as food prices unexpectedly dropped.
The Consumer Price Index (CPI) was 3.8% in the 12 months to September, according to the Office for National Statistics (ONS).
Inflation – or CPI – is a measure of how much the price of goods and services is rising or falling, and impacts households’ spending power.
It remained unchanged in September after the cost of food and non-alcoholic drinks fell for the first time since May 2024, the ONS said.
It hit 3.8% in July and August amid pressure from rising food prices, as firms highlighted increased tax and labour costs.
Previously, it hit 3.6% in June, and measured 3.4% in May, down from 3.5% the month before.
The ONS said transport costs such as fuel had the biggest impact on last month’s inflation rates. But it was offset by the cost of food and non-alcoholic drinks, as well as recreation, going down.
Office for National Statistics (ONS) chief economist Grant Fitzner said: “A variety of price movements meant inflation was unchanged overall in September.
“The largest upward drivers came from petrol prices and airfares, where the fall in prices eased in comparison to last year.
“These were offset by lower prices for a range of recreational and cultural purchases including live events.
“The cost of food and non-alcoholic drinks also fell for the first time since May last year.”
September was the 12th month in a row that CPI had remained stubbornly above the Bank of England’s (BoE) target of 2%.
However, the figure was also lower than what had been predicted by economists.
Experts from Pantheon Macroeconomics had estimated that inflation would rise to 4% last month due to higher motor fuel and airfare prices, as well as “strong clothes prices”.
It was also predicted that a hike to private school fees would have an impact.
Some schools were expected to increase fees from the start of the new school year as they staggered higher costs for parents after the Government introduced a 20% VAT rate for private school fees.
The Bank of England (BoE) also previously forecast that inflation would peak at around 4% in September before steadily falling.
This is well above the Bank’s 2% target for the rate.
Pantheon Macroeconomics’ Rob Wood has said he expects inflation to “slow only slightly” in the following months, dipping to 3.8% by the end of the year.
Other economists have been more optimistic, with Investec suggesting it expects the rate to have peaked at 3.9% in September before falling.
The September inflation rate is typically used to decide the level of increase for many benefits, such as universal credit, tax credits and disability benefits.
What does it mean for my money?
Rising inflation means goods and services like food, entertainment, fuel, and clothes cost more.
It means prices will rise faster, pushing up grocery and household bills for millions of households, while salaries don’t necessarily go up.
The Bank of England may keep interest rates higher for longer to control inflation, which could mean that mortgage rates will rise again.
This would also make it more expensive to borrow money, for example through a credit card.
Rising inflation also means any money you have in savings accounts is earning less interest in real terms.
David Murray, head of advice at Aberdeen Financial Planning, said: “Rising inflation eats away at your money in real terms, so if you’re able to save or invest, it’s vital to check your finances are pulling their weight.
“That might mean moving cash into a better savings rate, reviewing your ISA options, or making use of pension tax reliefs.”
Why does inflation matter?
INFLATION is a measure of the cost of living. It looks at how much the price of goods, such as food or televisions, and services, such as haircuts or train tickets, has changed over time.
Usually people measure inflation by comparing the cost of things today with how much they cost a year ago. The average increase in prices is known as the inflation rate.
The government sets an inflation target of 2%.
If inflation is too high or it moves around a lot, the Bank of England says it is hard for businesses to set the right prices and for people to plan their spending.
High inflation rates also means people are having to spend more, while savings are likely to be eroded as the cost of goods is more than the interest we’re earning.
Low inflation, on the other hand, means lower prices and a greater likelihood of interest rates on savings beating the inflation rate.
But if inflation is too low some people may put off spending because they expect prices to fall. And if everybody reduced their spending then companies could fail and people might lose their jobs.
See our UK inflation guide and our Is low inflation good? guide for more information.