This Is What 10.1% Inflation Will Do To Your Monthly Spend

Expect to see a change in the cost of your food shopping, household bills and perhaps even your pension.
Crisis and rising commodity prices concept stock
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Crisis and rising commodity prices concept stock

Inflation returned to a 40-year-high of 10.1% in September, driven by rising food prices.

New data from the Office for National Statistics (ONS) has just found that the consumer prices index increased to this level after a brief drop to 9.9% in August, having soared to 10.1% in July this year too. For context, the last time inflation went above 10% was in 1982, and the Bank of England’s target inflation rate is 2% – so this is quite a big deal.

And in the meantime, pay is not rising at the same rate – meaning budgets are much more stretched than previously.

Here’s a breakdown of what this means for your monthly finances.

Pay growth v inflation
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Pay growth v inflation

What does this mean for household bills?

ONS found that the largest contribution to inflation rates in September came from both housing and household services.

As expected, the prices for electricity rose by 54% and 95.7% for gas in the year to September. This comes down to the war in Ukraine putting pressure on the energy supplies for the whole of Europe – a problem which set off the cost of living crisis earlier this year.

New chancellor Jeremy Hunt did tear up the mini-budget this week, and cut the government’s assistance programme for all energy bills down to six months from two years. The ONS has said it is thinking about whether to the cut to the energy freeze would affect overall inflation, and will make an announcement on October 31, the same day Hunt unveils his medium-term fiscal plan.

However, the overall inflation rate was also pulled down due to the declining price in petrol – and this has fallen due to the struggling global economy.

What about groceries?

Food and drink are increasing in price the most, rising by almost 15% year on year – the fastest annual climb in price since April 1980.

Kitchen staples – bread, cereals, meat, milk, cheese and eggs – are all rising the most, but nearly every food item is more expensive than it was a year ago, both in the supermarket and in restaurants.

Food and non-alcoholic beverages account for the second largest contribution to the increase in inflation overall.

Price rises in past 12 months
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Price rises in past 12 months

What does this mean for your mortgage?

Mortgages costs and rising interest rates add to the ongoing stresses households currently face – and they’re not likely to decline any time soon either.

The Bank of England is trying to reduce inflation by hiking up interest rates, which is meant to stop people from borrowing so much and reducing spending overall, but cost reductions in the housing market are usually gradual.

For instance, mortgage rates spiked recently due to the disastrous mini-budget, and are yet to climb down.

What about the triple lock?

The September inflation figure is usually used to increase pensions and benefits.

The Conservatives had previously pledged to increase the state pension in line inflation, average wage growth or 2.5% – whichever is highest.

However, Hunt may break this guarantee so that the state pension does not climb by 10.1%, although this is yet to be guaranteed.

If a smaller pension is handed out, this adds a further strain to the cost of living.

How does this affect other expenses?

ONS found there were the prices for hotel overnight stays, furniture and household goods all increased too.

But, there was a surprising decrease in the cost of airline tickets, as prices fell more than usual for this time of year. This may be because people are going on fewer holidays due to the cost of living crisis.

Shop Price annual inflation rate
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Shop Price annual inflation rate