Inflation at 3.8%: What's up and down in prices?

The latest figure for price inflation has been released – and it’s both good news and bad news for the government.

Many economists predicted it would rise this month compared to August, but the Office for National Statistics (ONS) says it has instead held at the same rate of 3.8%.

However, that’s still a fair bit higher than the 2% target and Chancellor Rachel Reeves isn’t happy about it.

She said: ‘For too long, our economy has felt stuck, with people feeling like they are putting in more and getting less out. That needs to change.’

The headline figure masks a much more complicated reality.

When the ONS is calculating how quickly prices are rising – what’s known as the inflation rate – it looks at a vast range of items and services from hotel rooms and booze to restaurant meals and motor fuel.

So while inflation across the board is at 3.8%, some of the things we buy every day will be going up in price more quickly than others.

The main piece of good news from today’s announcement is a fall in the price of food and non-alcoholic drinks.

It’s only a small reduction of 0.2% on a monthly basis, but that’s the first time it has gone down since May last year.

The biggest price increases in the past 12 months were in housing and household services, which had an inflation rate of 7.3%. Prices in the education sector, which includes tuition fees, had a 7.2% inflation rate.

Alcohol and tobacco products, meanwhile, were 5.8% more expensive than they were in September last year.

The fall in food and non-alcoholic drink prices in the last month meant it had a lower inflation rate this month compared to August – 4.5% versus 5.1% – but they’re still pricier than they were last September.

Here are some more of the individual inflation rates this month:

• Chocolate: Up 18.1% in the 12 months to September
• Petrol: Down 2.1%
• Diesel: No change
• Soft drinks: Up 6%
• Fruit: Up 4.1%
• Crisps: Up 1.8%
• Eggs: Up 4%
• Bread: Up 1.5%
• Fish: Down 1.6%

What does this mean for you? zaia newsmoney expert Rosie Murray-West explains

Although a 3.8% rate of inflation is lower than many economists had expected, it still means that prices are rising faster than many of us would like. The Bank of England’s target for inflation is 2%, and inflation has been running way above this for many months, meaning that many of us are struggling to keep pace with the cost of living.

The figures showed that some items such as cheese and bread are now cheaper, but the cost of clothes, hotels and private schools are accelerating fast. Everyone feels inflation differently, depending on what they spend and with inflation still nearly double target most of us will still be feeling the pinch of a Cost-of-Living Crisis.

The main disability benefits, such as Personal Independence Payment (PIP), attendance allowance and Disability Allowance also use the September inflation figure so should increase by 3.8%. These increase automatically, but ministers must decide whether Universal Credit, which is what most benefit claimants now receive, will do the same.

Parents could also see Child Benefit increase, as September’s measure of inflation is traditionally used as the yardstick for annual uplifts for this benefit too. If the Government confirms this uplift in the November Budget, Child Benefit for the eldest child will rise to £27.03 a week from £26.05. For any additional children, parents will receive £17.69 a week, up from £17.25.

Economists are pondering whether today’s figures mean that interest rates will fall again soon. The Bank of England keeps rates higher when inflation is high, as this tends to control price rises, and cuts them when it is lower. Rates are currently at 4%, and although most people think they won’t be cut again until next year, some economists now believe there is ‘wiggle room’ for a cut earlier, even in November or December. Most believe that inflation will trend down from here.

The figures are a glimmer of hope for Rachel Reeves, as she’ll pay slightly less than expected in benefits and would pay less to service the government’s debt if rates fell.

How do they work out the inflation rate?

The whole picture is complicated by the way the rate is calculated: prices are compared to where they were this time last year. This month’s rate means prices are 3.8% higher than they were in September 2024.

Take air fares for example. They fell by 28.8% from last month, the third biggest drop in price for September since 2001.

But last year, air fares fell by 34.4% between August and September – which was the biggest drop since 2001.

Despite this year’s reduction in price, it didn’t fall quite as far as it did this time last year, which pushed up the inflation rate.

All this means it’s quite hard for day-to-day government decisions to have an impact on inflation, as it depends on whether prices happened to be particularly low or high exactly a year ago.

Get in touch with our news team by emailing us at webnews@zaia news.co.uk.

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