Inflation may peak ‘earlier and lower’ due to energy bills help

Martin Lewis reacts to news inflation last month fell to 9.9%

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Soaring inflation has been a major worry for millions of households as they grapple with rising prices and skyrocketing bills. When CPI inflation hit 10.1 percent in the year to July 2022, experts suggested the worst was potentially yet to come.

Double digit inflation caused fears to rise about a potential recession and brutally damaged economy.

However, the latest data from the Office for National Statistics (ONS) has shown inflation has dropped slightly.

The CPI measure was recorded at 9.9 percent in the year to August 2022, showing a slight dip despite inflation still remaining stubbornly high.

High inflation has increased the pressure on the Bank of England to raise its interest rates further to get back to its inflationary target of two percent.

But according to one expert, the latest announcement could signal an inflationary peak having been hit.

This could be motivated by the recent decision by the new Prime Minister Liz Truss to offer support with energy bills.

Daniel Casali, Chief Investment Strategist at Evelyn Partners, explained the mixed signals of inflation recently. 

He said: “This August print does not reflect recently announced policy measures, which will have a material effect on future inflation readings. 

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“The new Liz Truss Government delivered a significant intervention in the energy market, including a two-year ‘Energy Price Guarantee’ that fixes the average household bill at around £2,500 (based on typical usage) and lasts for two years, starting October 1.

“This comes on top of a £400 energy rebate from the previous Government under Boris Johnson.

‘By ‘capping’ utility energy prices, this likely means that headline CPI inflation is set to peak earlier and lower than some economists had previously predicted. 

“For instance, macro research house Capital Economics now estimates that headline annual CPI inflation peaks at 11.3 percent this November instead of a top of 14.5 percent in January 2023.”

While high inflation could still wreak havoc, the fact it may be slightly lower than expected could be good news.

Mr Casali added it is likely to give “a little support” to household incomes which have been battered, going forward.

Inflation has defied expectations by taking a dip from 40-year highs.

However, this does not mean Britons are not set for a bumpy ride, according to another expert.

Myron Jobson, Senior Personal Finance Analyst at interactive investor, warned of potential challenges ahead.

He explained: “Inflation might not be biting as hard, and the Government’s unprecedented multi-billion-pound cost of living support package will help alleviate the squeeze on household budget.

“Consumers will still need to strap in for a winter discontent for personal finances.”

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But what can Britons do to prepare themselves for challenging inflationary levels?

Mr Jobson states making as many savings now as possible is likely to help, because it will assist Britons in building up reserves for winter when they will really need it most.

Laura Howard, Personal Finance Expert at Forbes Advisor, has suggested people reach out to their energy supplier fairly quickly if they are struggling to pay their bills already.

It is likely the provider will help to offer a workable solution while keeping energy switched ‘on’ for customers.

The expert also suggested the same approach for debts, adding: ““If you are struggling with credit card repayments, again contact the lender to agree a manageable repayment plan. 

“Missing payments will negatively impact your credit record, storing up even greater problems for the future.

“If you are worried about debt, a debt charity such as StepChange is free and impartial. 

“Never pay for advice around debt and never share details with companies contacting you by email or phone. Sadly, even debt advice is a target for scammers.”

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