A guide to inflation and what it means for households and the economy

UK inflation has risen to a six-month high of 2.3% in October, according to official data.

The Office for National Statistics revealed that inflation bounced back from its three-year low in September, exceeding the 2% target rate set by the Bank of England and UK Government. Here we take a look at what the latest inflation data means for households and the economy.

What is inflation?

Inflation is the term used to describe the rising price of goods and services. The inflation rate refers to how quickly prices are increasing. With October's inflation rate at 2.3%, an item that cost £100 a year ago would now cost £102.30. This is higher than the 1.7% inflation rate recorded in September, indicating that prices are rising more rapidly.

Is inflation rising for everything?

The latest figures showed that several key areas have experienced stronger inflation or a reduction in recent deflation, but not everything. In fact, motor fuel price rises were lower for the month and dragged down on the overall inflation rate. Live music and theatre ticket price increases also dropped for the month.

What made inflation go up?

The largest single driver of the rise in the inflation rate was energy prices. The average price of gas fell in the year to October by 7.3%, but this was a much smaller drop than the fall of 22.8% in the year to September.

The latest fall in the price of electricity also slowed sharply for the month. Following the energy regulator Ofgem's decision to increase its energy price cap by around 10% in October, the average household energy bill rose by £149 a year. Another significant factor in last month's overall inflation rise was the cost of air travel.

The ONS reported that air fares swung from a drop of 5.0% in the 12 months to September to a sharp rise of 6.6% in the year to October. .

Will the cost of living ever decrease?

The Government doesn't want prices to fall. It sets the Bank of England, the UK’s central bank, a target to keep the inflation rate at 2%. It claims this is the ideal level to assist people and businesses in planning their spending. However, some items are cheaper than they were a year ago, such as pasta, cheese and milk.

Will inflation continue to rise?

Inflation is expected to rise further before it starts falling again back to the 2% target level. The Bank of England said earlier this month that it expects the rate of inflation to steadily rise to a peak of around 2.8% in third quarter of 2025.

It is then not expected to remain steadily at 2% until 2027, according to the central bank. ING developed markets economist James Smith has suggested inflation could continue to increase more sharply than the Bank of England has forecast, suggesting that CPI inflation "could get close to 3% in January".

What does the rise in inflation mean for interest rates?

Mr Smith, an economist, has suggested that the recent surge in inflation "reduces the chance" of a rate cut by members of the Bank of England’s Monetary Policy Committee (MPC) last month. The central bank was already widely expected to maintain rates at 4.75% in the upcoming meeting next month, with potential further cuts anticipated next year.

Thomas Pugh, an economist at RSM UK, stated that service inflation, which has been persistent in recent months, is expected to decrease, possibly prompting policymakers to gradually lower the base interest rate. "A rate cut in December looks very unlikely, but we’re expecting one cut a quarter next year to leave rates at 3.75% by the end of 2025," he said.

Is the rise in inflation linked to the Government?

This latest data arrives just weeks after the Government announced a series of significant spending and tax measures in last month’s autumn . Therefore, the data for October is too early to reflect any notable impact from policy changes made by the Chancellor.

However, economists will be monitoring how recent policy measures are reflected in the CPI data. . The Government’s official forecaster, the Office for Budget Responsibility, revised its inflation predictions for the next five years upwards last month.

The OBR stated that the sharp increase in spending, nearly £70 billion extra each year, announced by the Chancellor would contribute to higher inflation in the short-term, but would also stimulate stronger economic growth. Several businesses, including Sainsbury’s, have indicated that tax increases and wage rises are likely to lead to higher inflation for consumers.