Inflation hits 3.5% as fuel prices surge

(Sharecast News) - Inflation soared to the highest annual rate in almost a year last month, official data showed on Wednesday, as transport costs soared. According to the Office for National Statistics, the consumer price index rose by 3.5% in the 12 months to September, up from 3.1% in August. It was also slightly above forecasts for 3.4%.

The largest upward contribution came from transport, particularly motor fuels, with prices in the segment jumping 6.6%, up from 4.6% a month earlier. The average price of petrol rose to 169.5p per litre, the highest since August 2022, while the cost of diesel was the steepest since July 2022.

Core CPI, which strips out more volatile energy, food, alcohol and tobacco prices, rose by 2.8%, up from 2.5% in August.

Grant Fitzner, chief economist at the ONS, said: "Other upward pressures included airfares and, to a lesser extent, computer games and live events, which are often volatile.

"These were partially offset by the cost of hotel stays, where prices rose by less than this time last year."

Global energy prices have soared in the wake of war in the Middle East, reigniting inflation concerns. The Bank of England has so far left the cost of borrowing on hold this year, at 3.75%, but is now widely expected to hike rates when it next meets on 5 November. The BoE's long-term inflation target is 2%.

Martin Sartorius, lead economist at the Confederation of British Industry, said: "September's rise in inflation means that a rate hike will remain firmly on the table at the Monetary Policy Committee's next meeting. While there have been limited signs of higher energy costs feeding into domestic price pressures so far, the MPC will likely want to guard against the risk of persistently higher headline inflation becoming embedded in future wage and price-setting behaviour."

Other data released by the ONS on Wednesday showed a 8.3% hike in producer input prices in the year to September, up from a revised 6.7% gain in August and well ahead of forecasts for a 7.6% jump. Factory gate prices spiked 4.6%, the highest since April 2023, against August's 3.8% rise. A surge in the price of crude oil was the largest contributory factor.

There was also an update on public sector borrowing, which came in £24.5bn in September, up £1.8bn year-on-year, as government spending - including higher debt interest costs - increased by more than inflation. Borrowing in the financial year to September remained below the same period a year earlier, at £97.8bn, but ahead of the Office for Budget Responsibility's forecast.