Inflation: Cost of living challenges require bold decisions | Money News Aitrend

You know bad economic news is coming when a Chancellor of the Exchequer tries to get retaliation first.

Indications from the Treasury on Tuesday afternoon that Rachel Reeves has prioritized cost of living relief must be seen in light of inflation figures, released this morning, and widely expected to exceed 4% for the first time since the fallout from the energy crisis.

In this context, the fact that consumer price inflation in September remained stable at 3.8% This is good news for the Treasury, and even for consumers.

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This figure remains almost double the Bank of England’s 2% target, a rate set when Labor came to power, but economists at the Bank and elsewhere expect this month to mark the peak of this inflationary cycle.

This is largely because the impact of last year’s rise in energy prices will no longer be taken into account in the calculations next month.

The slight upside surprise also improved the chances of an interest rate cut before the end of the year, with markets almost fully pricing in expectations of a cut to 3.75% by December, although policymakers could wait until their next meeting early next month.

The September figure also pegs profits higher than next April, so the figure could improve the Treasury’s internal forecasts, but at a rate more than double that of a year ago, it will still add billions to the bill due in the new year.

For consumers, there was good news and bad news, and the knowledge that they were facing the biggest price rises in Europe brought them no comfort. Fuel prices rose, but there was a welcome relief in the food inflation rate, which fell to 4.5% from 5.1% in August, still well above the headline rate and representing an inevitable increase in costs for every household.

Learn more:
Chancellor plans to cut energy bills in Budget
Why this bull market for beef?

The chancellor will convene a meeting of ministers on Thursday to discuss ways to reduce the cost of living and has signaled that cutting energy bills is a priority.

The easiest lever for her to use is to cut the VAT rate on gas and electricity from 5% to zero, which would reduce average bills by around £80 but cost £2.5 billion.

More fundamental reform of energy prices, which remain the second highest in Europe for domestic bill payers and the highest for industrial users, may be needed to quickly reduce inflation and boost growth.