- CPI inflation fell to 3.6% in October – from 3.8% in September – as expected.
- On a monthly basis, it was up 0.4% – compared to 0.6% a year earlier.
- Core CPI (excluding energy, food, alcohol and tobacco) was 3.4% (down from 3.5%) and services inflation was 4.5% (down from 4.7%).
- Why, and what it means for you.
The ONS has released inflation figures for October: Consumer price inflation, UK – Office for National Statistics
Sarah Coles, head of personal finance, Hargreaves Lansdown:
“If you’re wondering what that warm breeze is, it’s the entire country heaving a sigh of relief at the news that inflation has fallen for the first time since March. The Bank of England had forecast it had peaked in September and prices are following the script. It should help ease the pressure on households, the Bank of England and mortgage borrowers. Savers may see rates ease a little, but it won’t take much effort to stay ahead of inflation.
What’s moving prices?
Energy prices powered the drop in inflation, as the new energy price cap turned down the dial. This feels counter-intuitive, because the energy cap rose in October. The key is that it rose less than it had a year earlier, so overall electricity prices are up just 2.7% and gas prices 2.1%. Energy prices have been the subject of Budget speculation that the government could try to ease some of the pain of higher prices for bill payers. If this comes to fruition, it will help keep a lid on inflation too.
Hotel prices also helped push prices down in October. Monthly prices tend to dip a little in the lull between the summer and the busy Christmas period, but this year they dipped a fair amount more than last year. Air fares also rose less than this time last year – especially in Europe. Both are clearly luxuries for most people, so there’s a risk that as belts get tightened, travel is squeezed out.
Food prices proved less digestible. After falling the previous month, food inflation rebounded to 4.9%. On a monthly basis, prices were up 0.5%. Striking annual rises included beef and veal up 27%, whole milk up 15.5% and butter at 14.3%. Cattle farmers are still feeling the financial impacts of a poor grass harvest – as well as increased labour costs throughout the production and sales process. For shoppers this will come as dismal news as the expensive Christmas season approaches. The last three months of the year tends to see people spend more, as they trade up and buy treats. Rising prices could mean families face a cut price Christmas – especially since the price of chocolate is also up 17.5%.
To make matters even tougher, the wider food and drink market, including alcoholic drinks, could end up getting pricier after the Budget if the Chancellor uses alcohol duty to raise the spirits at the Treasury.
Petrol prices put the squeeze on drivers, with the average price of petrol rising 0.7p per litre and diesel up 1.2p per litre between September and October. This isn’t just bad news for drivers, it also feeds though into higher prices for anything that needs to be delivered. The pain may not be over yet either, because the Budget could bring changes to duty that mean even more pain at the pumps.”
What it means for retirees
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown:
“We’ve had a wild ride with inflation in recent years and, while it is nowhere near the double-digit highs we’ve seen previously, it still needs to be factored into your retirement plan. The state pension rises in line with the triple lock every year, so offers an important level of inflation proofing, while those on final salary pensions will see their income rise every year. It leaves those with a defined contribution pension with an important choice – how do they inflation proof their retirement income? If they are in income drawdown then investment growth should help with this but if you are in the market for a guaranteed income through an annuity, then you need to consider which route is best.
Level annuities will give you the highest starting income. The most recent data from HL’s annuity search engine says a 65-year-old with a £100,000 pension can get up to £7,681 per year from a single life annuity with a five-year guarantee. This is much higher than an inflation linked product. One that rises 3% per year will deliver a starting income of £5,742. This has to be balanced against the fact that it will rise over time, but it could take many years before you reach the starting point of the level product. These are all important considerations given that once bought an annuity cannot be unwound.”
What it means for savings
Mark Hicks, head of Active Savings, Hargreaves Lansdown:
“Inflation may have eased, but it’s still running streets ahead of high street savings. If you have a branch-based easy access account you’re being outstripped by rising prices, and your savings are losing spending power with each passing month. In fact, with average easy access savings rates around 2.5%, the majority of savers are losing purchasing power. However, you don’t need to settle for something average.
The market is incredibly competitive right now – especially for easy access and cash ISA. It means it’s more important than ever to shop around and consider online banks and savings platforms, because there are still plenty of accounts leading the pack, way ahead of inflation.
For money you don’t need for a specific period, it’s also well worth considering locking in a fixed rate deal now. You can get fixed terms around 4.4%, which look increasingly attractive at a time when rates and inflation are both expected to fall from here.”
What it means for mortgages
Sarah Coles:
“We’re reaping the spoils of a mortgage price war, with the best two-year fixed-rate deals closing in on 3.5%. The banks were already broadly factoring in today’s news, so it won’t move the dial in itself. However, competition is so fierce we can expect the banks to keep cutting the rates in an effort to stay on top.
This will be a relief to anyone in the market for a remortgage in the near future, especially those coming off a 2-year deal. Those ending a 5-year fix will have more of a challenge on their hands, because rates back then were so low, so they will see their repayments rise. The plus side is that borrowers will have been sitting pretty on this rate while the rest of the market wrestled with higher monthly payments. The downside is that things could get less pretty from here.
The HL Savings & Resilience Barometer shows that single homeowners will have an even bigger struggle. They have an average of just £73 left at the end of the month – compared to couples who own together who have £420. It means they have far less room to manoeuvre if their mortgage payments are on the way up.”
