How September's inflation will affect your benefits in 2024

The Office for National Statistics (ONS) has announced that inflation for September 2023 was 6.7%. This is the same as it was in August.

September’s inflation figures influence how much State Pensions and benefits will increase by next April.

What is inflation?

Inflation describes rising prices. It’s calculated each month by the ONS, using the prices of hundreds of items that people buy regularly. One such set of items makes up the Consumer Price Index (CPI). A slightly different set of items makes up the Retail Price Index (RPI).

Every month, the ONS adds up the cost of these sets of items and compares each total to the previous year. The amount it’s changed by is the rate of inflation.

News stories about inflation usually reference the CPI. But, the RPI is widely used too.

Benefits are expected to rise by 6.7% next year

Every year, the Government looks at the CPI inflation figures for September and uses this to inform how benefits increase the following April. This covers Universal Credit, tax credits, and disability and health related benefits.

As CPI inflation for September 2023 was 6.7%, we can expect benefits to rise by this much in April 2024. However, the Government will confirm this in the coming weeks.

State Pensions should increase by 7.8% in April

State Pensions are set to rise by 7.8% in April 2024, in line with September’s average earnings growth under the “triple lock”.

The “triple lock” is a Government commitment over and above their legal duties. It guarantees the State Pension will rise by whichever is the highest of:

• Average earnings growth
• CPI inflation
• 2.5%

September’s inflation figures are used to determine this, with increases coming into effect the following April. At 7.8%, average earnings growth is higher than both CPI inflation (6.7%) and 2.5%. So, this is the amount State Pensions should rise by next year.

How else inflation might affect your finances

Food prices are still high, but falling (slowly)

Food costs are a big part of inflation. They’ve been driven up recently by a range of issues, including the conflict in Ukraine and poor harvests.

Today’s figures revealed that food prices are, on average, 12.2% higher than they were a year ago. This is a steep increase. But, for the first time in two years, prices have fallen month on month.

Food prices were, overall, 0.1% cheaper than they were in August. Dairy products and fruit juices in particular have dropped in price in recent weeks. Cheese was 3.3% cheaper in September than the previous month.

Fuel prices rose in September, but are still cheaper than last year

Fuel prices rose in September and are the main reason inflation held steady at 6.7%, instead of dropping like some economists predicted. However, they are still 9.7% - or 12.9 pence per litre – cheaper than in September last year.

2024 train fares will be increased below the rate of inflation

Normally, the Government looks at RPI inflation for July to decide how much to increase train fares by the following January. However, the Department for Transport has already confirmed that 2024’s price increase will be delayed from January until March. And it will be lower than July’s RPI, which was 9.0%.

Wages are rising faster than inflation for the first time in almost two years

Average earnings growth to August 2023 was 7.8%. With inflation at 6.7%, this means that wages are rising faster than inflation for the first time since October 2021.

However, despite this, many people are still experiencing a “real terms pay cut”. This happens when prices rise faster than wages. Even though you’re earning the same amount, your money doesn’t go as far. This has been the situation for almost two years, so it will be a while before wages fully recover.

Mobile and broadband bill increases will be announced later in the year

Annual increases to mobile phone and broadband bills are also driven by inflation. Prices tend to go up every March or April, but it’s not yet clear how much they’ll rise by in 2024.

Mobile and broadband providers usually measure inflation in December or January, with their price increases announced shortly afterwards.

Overall, today’s news is better than it seems

Seeing that inflation overall is unchanged might seem a bit disheartening. But, the news is much better than it seems on the surface. Food prices are starting to fall. Wages are rising faster than inflation for the first time in a long time. Benefits and the State Pension should both rise significantly next April.

And that’s the most important news to come from today’s announcement. People who receive the State Pension or benefits now know what to expect next April. And, when you have a good idea of what’s coming, you can plan for it.

Sources

Office for National Statistics: https://www.ons.gov.uk/economy/inflationandpriceindices sourced on 18th October 2023

https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/averageweeklyearningsingreatbritain/october2023 sourced on 17th October 2023

https://www.bankofengland.co.uk/explainers/will-inflation-in-the-uk-keep-rising sourced on 18th October 2023