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Inflation likely to hit 5% rate Inflation likely to hit 5% rate
(about 4 hours later)
The annual rate of UK consumer inflation is expected to hit 5%, with higher energy bills to blame for much of the rise. The UK's inflation rate could hit 5% when figures are released later, with energy bills behind much of the rise.
Meanwhile the Retail Prices Index (RPI) is expected to rise to about 4.9%. However, analysts expect this to mark a peak, with inflation tipped to slow as a result of lower oil prices and reduced demand in a slowing economy.
September's RPI figures are especially important because they are used to calculate state pensions and benefits for the coming year. Consumer price inflation was 4.7% in August, up from 4.4% the month before.
But most analysts believe the cost of living will soon start to fall back as wholesale oil prices drop further. The Retail Prices Index (RPI) is set to rise to about 4.9%. September's figure will be used to calculate benefits and state pensions for the coming year.
The Bank of England issued the warning that the Consumer Prices Index (CPI) - the government's preferred measure - is set to hit 5%. 'Diluting' effect
Increased food and energy prices this year have been blamed for taking inflation beyond the government's target of 2%. The recent economic downturn has seen recession replace inflation as the key risk to the UK economy.
Last week, the Bank of England cut interest rates to 4.5% from 5% in a co-ordinated worldwide move. The Bank added that the risks of inflation had moved "decisively" to the downside.
The Bank predicts inflation will remain above the 2% target set by government until well into next year.
But reduced economic activity, rising unemployment and the continued difficulty in getting credit would curb spending and "dilute underlying inflationary pressures", said Howard Archer, chief UK and European economist with Global Insight,
"The recent marked retreat in oil and commodity prices will obviously help matters," he added.
Increased food and energy prices this year have been blamed for taking inflation beyond the 2% target.
Economic downturnEconomic downturn
The rate was 4.7% in August, up from 4.4% the month before.
The largest contributor to August's rise in inflation was higher gas and electricity billsThe largest contributor to August's rise in inflation was higher gas and electricity bills
This outweighed the fall in the price of heating oil and petrol, which fell by 5.5 pence per litre between July and August to stand at an average of 113.3p.This outweighed the fall in the price of heating oil and petrol, which fell by 5.5 pence per litre between July and August to stand at an average of 113.3p.
Nils Blythe, the BBC's business correspondent, said most experts predict the cost of living will soon start to fall as much lower wholesale oil prices bring down the cost of petrol and the economic downturn forces businesses to reduce prices. The latest indicator of the economic slowdown came from the latest survey by the Royal Institution of Chartered Surveyors. This indicated that house prices had continued to fall in September and sales per estate agent had been at their lowest level for 30 years.
The latest indicator of the slowdown is the monthly survey from the Royal Institution of Chartered Surveyors, showing house prices are falling relentlessly and sales per estate agent are at their lowest level for 30 years.
Inflation is the rate of change in the level of prices for goods and services, which affects the purchasing power of money.Inflation is the rate of change in the level of prices for goods and services, which affects the purchasing power of money.
Both the CPI and RPI measure the prices of products and services that consumers buy.Both the CPI and RPI measure the prices of products and services that consumers buy.
A price index is made up of the prices of hundreds of goods and services - from basic items like bread to products, such as PCs.A price index is made up of the prices of hundreds of goods and services - from basic items like bread to products, such as PCs.