THE price of goods are rising at a higher rate than expected new figures form the Office For National Statistics reveal.
Inflation in October was 4.2%, its highest in nearly a decade and up from 3.1% a month earlier.
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Inflation is a measure of the cost of living. It looks at how much the price of goods has changed over time.
The average increase in prices is usually based on how much things cost today compared to a year ago and is known as the inflation rate.
The latest figures show inflation surged to nearly its highest since December 2011, pushed up by rising energy and fuel costs.
Grant Fitzner, chief economist at the ONS, said: “Inflation rose steeply in October to its highest rate in nearly a decade.
“This was driven by increased household energy bills due to the price cap hike, a rise in the cost of second-hand cars and fuel as well as higher prices in restaurants and hotels.
“Costs of goods produced by factories and the price of raw materials have also risen substantially and are now at their highest rates for at least 10 years.”
The government sets an inflation target of 2% to keep the economy growing steadily.
The Bank of England (BoE) has warned that inflation could hit 5% and it is expected to raise interest rates as a result.
Earlier this month the central bank decided to hold rates for now, despite rising speculation that it would increase interest rates.
There could be a rise before Christmas though, as the BoE’s next decision on interest rates will be December 16.
Typically a rate rise can help reduce inflation because it stops people spending and borrowing as much.
Sir John Gieve, former deputy governor of the Bank of England, said on the BBC’s Today programme on Radio Four: “It’s a little bit higher than the bank and most forecasters were expecting.
“The key point is that it’s not thought to be a one-off.
“The bank and other forecasters expect it to rise right the way through to April to around 5% and then to stay well above target for the rest of the year.”
Commenting on the figures, Chancellor Rishi Sunak said: “Many countries are experiencing higher inflation as we recover from Covid and we know people are facing pressures with the cost of living, which is why we are taking action worth more than £4.2 billion to help them.”
Mr Sunak said the government is helping people by cutting the taper rate for those in work getting Universal Credit and by introducing the Household Support Fund, which will provide £500m for struggling Brits through winter.
What does it mean for your finances?
The average increase in prices is usually based on how much things cost today compared to a year ago and is known as the inflation rate.
So if the rate of inflation is 2% it means that prices are generally 2% higher than they were this time last year.
The higher the rate of inflation the more prices are rising.
A higher rate of inflation means your money doesn’t go as far and you have to spend more.
But how much you earn may not increase at the same rate and that could leave you with less in your pocket overall.
It also means that if inflation is higher than the interest you’re earning on your savings, you are effectively losing money.
A saver with £1,000 stashed away in an easy-access cash account that pays an interest rate of 0.6% for instance, would make just £6.
But inflation means that £1,000 today would be worth 3% less in a year’s time – effectively wiping £30 off your spending power.
Steven Cameron, pensions director at Aegon said: “With rising prices, consumers should consciously think about what products and services they are buying as the value of the money in their pocket becomes increasingly threatened.
“Borrowers, and particularly those who may have emerged from the pandemic in debt, will feel the squeeze on their finances even more so, during what is already a challenging time of year for many households.
“The Bank of England have so far held off raising interest rates to ease the cost of living squeeze, but as the full post-pandemic picture becomes increasingly clear, the base rate may soon be lifted from its historic low.”
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