Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Inflation remains stubborn at 6.7%, which has brought months of progress towards easing the pressure on households to a screeching halt. It shows that the path towards fully wrangling inflation remains an uncertain and bumpy one.
“This inflation reading is significant because it is expected to be used to uprate inflation-linked benefits, such as Universal Credit, and tax credits in April next year. It also confirms that July’s average earnings are set to provide the latest bumper boost to the value of the state pension in the next tax year, which came in higher at 8.5%.
“Hopes for a fall in inflation were dashed, largely because of the rise in fuel prices and the cost of hotel stays. But the latest inflation report offers some cause for optimism. Inflation is still running at a much slower pace than a year ago or even earlier this year, with the continued slowdown in food inflation a welcome trend. If you remove volatile food and energy prices from the equation, ‘core’ inflation continues to wane. This reading matters because Bank of England policymakers monitor it to get a sense of inflation’s momentum.
“Falling core inflation and low economic growth could mean that interest rates might not need to go up further for the time being, which could benefit those in the market for a mortgage. But Bank of England policymakers are likely to keep the door open to additional rate rises until they can be more confident that they have a handle on rising prices.
“Some households are managing to shoulder the pain of higher prices - in part because of the wage growth run. But not every worker will have had a pay rise and the inflation burden continues to weigh heavy on many household finances.
“It remains important to keep tabs on your spending habits, ensuing that you have enough money stashed away in a rainy-day fund. The rule of thumb is to aim to hold three to six months’ living expenses in cash.”
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