Inflation

I am sure that many of you will have seen that the rate of Consumer Prices Index (CPI) inflation in the UK matched its record high in September, rising to 5.2% from 4.5% the month before.

An increase in energy costs has been blamed for the majority of the increase. The rate of 5.2% is the highest CPI measure since September 2008, and CPI has never been higher since this  measure was introduced back in 1997.

September's CPI measure is considerably higher than the Bank of England's target rate of 2%. However, the Bank of England governor Mervyn King is still expecting inflation to begin falling next year once factors such as the rise in VAT last January begin to drop out of the equation.

This recent rise in the cost of living highlights the risk of the Bank's latest move to revive the economy through further quantitative easing, which could help to stoke inflation.

The CPI figure delivered in September is key because it will be used to set the amount by which the state pension and Jobseekers' Allowance will rise next April.

It will be the first time that benefits have increased with CPI instead of the RPI.

Other rates set by the September inflation figures include allowances and indexation for income tax, national insurance, inheritance tax, capital gains tax, disability and maternity benefits, income support and tax credits. With pensions and other benefits rising by 5.2%, it will place increasing pressure on the chancellor, who is already battling to reduce the budget deficit.

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