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The core rate takes out of the headline measure particularly volatile elements – food, energy, alcohol and tobacco – and is a more reliable guide to the underlying picture. Admittedly, the core rate is down from a peak of 7.1pc in May 2023 so considerable progress has been made. But the fact that it is still at 3.5pc should give you pause for thought.
The major reason why the rate is still so high is the elevated rate of increase of prices in the services sector. Last month the annual rate of services inflation rose from 5.2pc to 5.6pc, a worrying number. Thankfully, this month the figure should drop back to something like 5.2pc. But this would still be much too high.
It is not difficult to understand why this figure is still so high. A large proportion of costs in the services sector is accounted for by pay and average earnings have been rising by about 5pc. On Tuesday, we will see the latest data on the growth of average earnings but this is unlikely to shed much light. For a start, the figures are a fair bit out of date. These will be the numbers for August.
There are, however, some awkward developments in the pipeline. Reflecting low monthly increases in the consumer prices index (CPI) last year dropping out of the annual comparison, October’s CPI will probably edge up to about 2.3pc, reflecting the 10pc increase in the Ofgem energy price cap. Because of a low monthly increase in the CPI last year, November’s figure should see inflation rise further to about 2.7pc. That will be published in December, just in time for Christmas.
Not only that, but there are some important challenges ahead on the pay front. The bumper increases awarded to the train drivers and junior doctors will not yet have had any influence on inflation. And, of course, doctors in the NHS do not provide a service that is directly paid for and hence its price does not appear in the CPI. But all along the impact of these large settlements has been on the Government’s budget numbers and through the potential knock-on effects on other pay settlements.
And in the spring come the latest increases to the minimum wage and the national living wage.