Inflation rose to 3.2 per cent last month paving the way for a substantial increase in state pension under the double lock.
According to the Office for National Statistics, the consumer prices index rose by 3.2 per cent in the 12 months to August 2021, up from 2 per cent in July, the largest ever recorded increase.
In addition, the consumer prices index including owner occupiers' housing costs (CPIH) rose by 3 per cent in the 12 months to August 2021, up from 2.1 per cent in the 12 months to July.
However, the ONS said this significant increase was likely to be temporary.
The ONS said higher prices in transport, restaurants, hotels and for food and drinks pushed up CPI, noting that in August 2020 prices in restaurants and cafes were discounted because of the government’s "Eat out to Help out" scheme.
Neil Messenger, director – client and markets, financial planning at Abrdn, said: “After a dip in July, the inflation rate has once again returned to month-on-month growth, continuing its upwards march to what is forecast to be a 4 per cent peak by the end of the year.
“While the Bank of England still expects rising rates to be temporary, savers need to be doing what they can now to ensure the value of their cash keeps pace with, or exceeds, inflation.
“With rock-bottom interest rates, inaction could risk their funds losing value in real terms. For every point inflation creeps up, their hard-earned pound buys that little bit less.”
But pensioners could be in line for a significant increase to their state pension if CPI continues to grow.
Today’s figure comes one month ahead of the important inflation figure which is used to determine the state pension increase in April.
The state pension will increase by 2.5 per cent or the level of inflation, depending on which is higher, after the government suspended the wages growth element of the triple lock for one year.
Kate Smith, head of pensions at Aegon, said: “The state pension has only seen an above-3 per cent increase three times since the triple lock was first used as the uprating mechanism a decade ago.
“If inflation next month is the same as today’s rate, then pensioners receiving the full new state pension will see an increase in weekly payments from £179.60 to £185.35, and those on the basic state pension will see an increase from £137.60 to £142 per week.
"However, if inflation rises further, a rate of 3.5 per cent would mean the new state pension will increase to £185.90 a week and the basic state pension will increase to £142.40 a week.”
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