Food price rises help inflation climb to five-year high

The expected increase in the squeeze on living standards comes as the weak pound pushes up the cost of imported fuel food and raw materials

It was the first time CPI inflation has reached 3% since April 2012.

British inflation rose to its highest level in more than five years in September, official data showed on Tuesday, adding to the likelihood that the Bank of England will raise interest rates next month.

Dairy and food price increases contributed "relatively strongly" to overall producer input and output prices and consumer prices, the ONS said, with transport costs also a major contributor.

"Meanwhile, our pay packets have stagnated with wage growth falling behind inflation, despite United Kingdom unemployment being at a record low".

On an annual basis, prices rose by 3% last month, its highest level since October 2013 when it climbed by 3.9%. Analysts had expected a 0.3% increase.

Food and transport costs helped to push up inflation in September, the ONS said. The costs of recreation and culture activities also rose, as did fuel prices.

Meanwhile, monthly input price inflation eased notably to 0.4 percent from 2.3 percent.

"But inflation looks set to fall sharply in 2018, now that retailers have almost completed sterling-related price rises", he said, with domestically-generated inflation muted, as show by the services sector's 2.7% increase in September. Inflation is then forecast to fall to 2.6% in 2018, before settling at 2.2% in both 2019 and 2020 respectively.

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"Against poor productivity, wages are expected to struggle to even keep up with lower inflation further out".

Core inflation that excludes energy, food, alcoholic beverages and tobacco, held steady at 2.7 percent.

Economists have previously warned the squeeze on households was being exacerbated by subdued wage growth.

However Governor Mark Carney narrowly avoided having to write a letter to Chancellor Philip Hammond explaining why inflation was more than 1% outside the 2% inflation target.

It came as the Retail Price Index (RPI), which is used to set next year's business rates, was unchanged last month at 3.9%.

Paul Hollingsworth, senior UK Economist at Capital Economics, said he expected inflation to be back below 3% by the end of this year.

"While oil and fuel costs continued to rise, overall, the rates of inflation for raw materials and goods leaving factories were little changed in September".

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