Inflation dropped slightly in August, driven by a drop in the price of fuel, but it still remains near a 40-year high.
The consumer price index rose 9.9 per cent in the 12 months to August this year, according to the Office for National Statistics this morning (September 14).
This is a two percentage point drop from the figure in July, but still well above the Bank of England's two per cent target.
Rising food prices made the largest contribution to the rate, as well as clothing and footwear and miscellaneous goods and services.
RPI, which measures the changes in retail prices of a basket of goods and services, as opposed to the weighted average prices tracked by the CPI, rose 12.3 per cent.
This came as somewhat of a surprise, but the pressure is still on the government to aid the UK through the winter squeeze on household income, said head of fixed interest research at Quilter Cheviot, Richard Carter.
“With hope, the cap on energy bills may mean inflation is now close to peaking, though last month’s fall could likely be a fluke and we may see inflation climb further still in the months to come,” he said.
“Given the crisis is not going to be short-lived, the government’s energy intervention is welcome, but questions are already being asked as to whether it goes far enough.”
The figures come eight days ahead of the Bank of England’s next rate setting meeting, which was delayed by a week due to the death of the Queen.
This week, Bank of America predicted that the central bank will hike rates by 50 basis points at each meeting until the end of the year, and raise rates thrice by 25 basis points in 2023, to take the base rate of interest to 4 per cent.
The bank’s research team upgraded its base rate ceiling prediction, which was previously 3.25 per cent, as a result of the tax cuts and increase in defence spending expected by Liz Truss’s new government.
Chief investment strategist at wealth manager Evelyn Partners, Daniel Casali, said the underlying core CPI remained “stubbornly high”.
“[This increases] the pressure on the Bank of England to raise interest rates by more than the 50bps expected by the Bloomberg consensus of economists when it meets on 22 September,” he said.
For Nicholas Hyett, investment analyst at Wealth Club, it is “far too early” to be celebrating victory in the war against rising prices.
“Critical everyday items like food and home heating continue to get more expensive, sucking disposable cash out of consumer wallets…further demands on the public purse would make things worse but may be unavoidable.
“Today's moderation in inflation is welcome, but it may be just a short calm before the storm resumes."