Britain’s inflation rate stuck at 3 per cent in October, matching September’s five-year high, and prompting fears the success of automatic enrolment could be in jeopardy.
The Office for National Statistics today (14 November) reported that food prices jumped across “all main classes of product” including dairy products, which have seen recent wholesale shortages.
Mike Prestwood, head of inflation at the ONS, said: "Inflation remains at a five-year high with rising food prices offset by a fall in the cost of fuel.
"The rise in the cost of raw materials and goods leaving factories both slowed, with crude oil and petroleum prices both increasing less than at this time last year."
Kate Smith, head of pensions at Aegon, said people are facing a triple whammy of squeezes in their purse, with inflation still running high, rising interest rates and little sign of real wage increases for the majority of workers.
She said in the near future, these pressures could act as the first big challenge to the government’s auto-enrolment programme.
Ms Smith said: "With employee pension contributions set to triple from 1 per cent to 3 per cent in April there is a risk opt-out rates may spike as people start to notice the impact on their take home pay.
"The government has few options to avert this other than to offset the decrease in disposable income with an increase in the tax free personal allowance.
"Employers also face hard decisions. With their auto-enrolment contribution doubling from next April, increases in the minimum wage and Brexit uncertainty, many will struggle to justify wage increases.
"Employers are between a rock and a hard place, not knowing whether to flag up auto enrolment increases to their employees to be helpful and drive up pension engagement, or whether this risks putting them off pension saving."
Chris Daems, director of Cervello Financial Planning, said in the early days of automatic enrolment there was a decent amount of speculation from both employers and commentators about whether opt out rates would be proportionately high.
However he said this turned out not to be the case and actually opt out rates have remained relatively low.
Mr Daems said: “While time will tell and both cost of living increases and increases in contributions have the potential to have an impact I suspect that the increase in opt outs will be less than expected."
Vince Smith-Hughes, retirement expert at Prudential, said news that inflation remains high will dismay pensioners living on a fixed income.
He said: "Rising prices squeeze the incomes of pensioners and the biggest risk for people drawing money from their pension is that they will outlive their savings.