UK inflation is expected to have risen to 3.4% in September, a move that would likely trigger a 3.9% increase in the State Pension next year, according to economists.
Most forecasters expect the Consumer Prices Index (CPI) rate to have climbed from 3.1% in August, based on a consensus compiled by Pantheon Macroeconomics. The Office for National Statistics (ONS) is due to confirm the figures on Wednesday.
Why September inflation matters
The September inflation rate is typically used to set the annual increase for many benefits, including universal credit, tax credits and disability benefits. It also feeds into the pension triple lock, which determines pension rises each April, using either this inflation figure, average earnings growth between May and July, or 2.5%.
With wage growth figures already published by the ONS, State Pensions are widely expected to rise by 3.9% next year. That would lift the full new State Pension to £250.70 a week from next April, up from £241.30, while the full basic State Pension would rise to £192.10 a week from £184.90.
Drivers behind the rise
Higher fuel and energy costs continue to push up the cost of living, economists say. Rob Wood and Elliott Jordan-Doak, UK economists at Pantheon, expect higher motor fuel prices to have been a major contributor, driven largely by diesel, with average prices surpassing £2 a litre for the first time ever at the start of the month, according to RAC figures.
The economists also noted that prices will have risen after a temporary summer VAT cut on family attractions such as theme parks and zoos ended in September. August's CPI rate of 3.1% remains above the Bank of England's 2% target.
Food and energy outlook
Sanjay Raja, chief UK economist at Deutsche Bank, said food price rises have been limited by "fierce" competition between supermarkets to keep prices low, but warned this could change from September as the energy shock and extreme weather take effect. He also cautioned that the cost of living is set to rise further, with an increase to Ofgem's price cap on household energy bills taking effect at the start of October, meaning higher prices for dual-fuel households over the winter.
Prime Minister Andy Burnham has announced plans to reform the triple lock, but these changes are not due to come into effect until 2030. The International Monetary Fund (IMF) recently warned that cost-of-living crises fall harder on poorer households, who dedicate a larger share of their income to essentials such as food and energy.
