Inflation Falls to 1.7% in September: Lowest Rate in Over Three Years
Key Points at a Glance:
- The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 2.6% in the 12 months to September 2024, down from 3.1% in August.
- The Consumer Prices Index (CPI) rose by 1.7% in the 12 months to September 2024, down from 2.2% in August.
- Core CPIH, which excludes volatile items like food and energy, eased to 4.0% from 4.3% in August.
- Interest rates are currently at 5%, with speculation growing about potential rate cuts in November.
Inflation Overview
In September 2024, the annual inflation rate continued its downward trend, offering a bit of relief after months of elevated figures. CPIH, a comprehensive measure of inflation that includes housing costs, rose by 2.6% over the past year, down from 3.1% in August. Similarly, CPI, which is slightly more focused on general goods and services, decreased to 1.7% from 2.2%.
This marks the lowest inflation rate we’ve seen in three years, driven primarily by falling transport costs, particularly airfares and fuel prices. However, there are still sectors where prices are rising, such as food and non-alcoholic beverages.
Key Drivers of Inflation in September 2024
While inflation has been steadily decreasing, it’s important to understand the factors that influenced this latest movement:
Transport Costs: Transport costs fell by 2.4% in the year to September 2024, compared to a 1.2% rise in August. This was largely driven by lower airfares, which saw a sharp decrease following the summer travel season, and falling motor fuel prices. Petrol prices dropped by 10.4% compared to the previous year, contributing to the reduction in inflation.
Food and Non-Alcoholic Beverages: Unlike transport, food and drink prices rose by 1.8% in the 12 months to September, up from 1.3% in August. This marked the first increase in food price inflation since March 2023. Key contributors included dairy products like milk, cheese, and eggs, as well as soft drinks and fruit.
Clothing and Footwear: Clothing prices also saw a smaller rise of 0.8% in September, down from 1.6% in August. The slowdown was largely driven by reductions in the price of women’s and men’s clothing.
Core Inflation and Its Impact
Core CPIH, which excludes food, energy, alcohol, and tobacco, offers a clearer view of the underlying inflationary pressures. In September 2024, core CPIH stood at 4.0%, down from 4.3% in August. This reduction indicates a cooling off in the prices of services and goods, although core inflation remains a concern for policymakers due to its potential impact on long-term economic stability.
Despite the decline, core inflation is still above the 2% target, largely due to ongoing wage growth and the cost of services like housing. Owner occupiers’ housing costs rose by 7.2%, marking the highest increase since 1992.
What Does This Mean for Interest Rates?
With inflation now comfortably below the Bank of England’s 2% target, there’s growing speculation that interest rates may be cut in the near future. Currently, rates stand at 5%, having been held steady after the first cut in August 2024.
The fall in inflation, combined with lower fuel and transport costs, could pave the way for a rate cut as early as November. Some analysts are even predicting further cuts in December if inflation continues to ease. However, it’s important to keep in mind that any reduction in rates will depend on various factors, including wage growth and energy prices.
Potential for Rate Cuts
Given the recent inflation data, there is speculation that The Bank of England could lower interest rates in the coming months. Markets are already betting on a 0.25% cut in November, with the possibility of further reductions if inflation remains under control.
For those with variable-rate mortgages or looking to remortgage, this could be an opportunity to secure a better deal. On the other hand, savers may need to keep an eye on how potential rate cuts affect the returns on their savings.
Looking Ahead: Economic Challenges Remain
While the recent drop in inflation is good news, there are still economic challenges on the horizon. Core inflation remains elevated, driven by wage growth and ongoing pressures in the services sector. Additionally, food prices, which had been easing, have now begun to rise again, suggesting that the cost-of-living challenges are not over yet.
Policymakers will be watching these factors closely as they prepare for the next Bank of England meeting in November. The focus will be on ensuring that inflation continues to fall without causing too much damage to the broader economy.
How Can Kerr & Watson Help?
At Kerr & Watson, we understand that navigating the changing economic landscape can be challenging, especially when it comes to mortgages and financial planning. Our team is here to provide expert advice, whether you’re looking to remortgage, purchase a property, or simply reassess your financial situation in light of the latest inflation and interest rate developments.
We’re dedicated to helping you make informed decisions that protect your financial future. Get in touch with us to discuss how the current inflation trends and potential interest rate cuts could affect your mortgage options or protection plans.
Whether you’re concerned about rising costs or considering a new mortgage, our expert team at Kerr & Watson is here to provide personalised advice that suits your needs. Contact us today to find out how we can help you make the best financial decisions in these uncertain times.
Contact us today to discuss how the latest economic changes might affect your mortgage and protection strategies.
Data Source: Office for National Statistics (ONS) Read more: Consumer price inflation, UK: September 2024
