To The Moon

UK inflation has ended a period of temporary easing and resumed its upward trend, with the Consumer Prices Index rising to 3.5% year-on-year from 3.1%, according to September inflation data published by the Office for National Statistics. The CPIH measure, which includes owner-occupiers' housing costs, came in at 3.6%.

The main driver behind this rebound was a sharp surge in fuel prices. Retail prices for petrol and diesel climbed to their highest levels since the summer and autumn of 2022, with motor fuel prices jumping nearly 30% year-on-year, making the transport sector the largest single contributor to inflation. At the same time, prices in the hotel and restaurant sector cooled somewhat, partially offsetting the upward pressure from energy costs.

Core inflation, which strips out food, energy, alcohol and tobacco, also moved higher, with core CPI reaching 2.8%. Goods inflation rebounded noticeably, while services inflation remained stubbornly resilient. Food inflation held at a relatively low 1.3%, but industry bodies have warned that cost pass-through lags behind, meaning food price pressures could persist for some time.

In international comparison, the UK's September inflation rate was higher than those of France and Germany. As CPI is the anchor indicator for the Bank of England's monetary policy, the renewed pickup in inflation may introduce fresh uncertainty into the outlook for interest rates. The next round of UK inflation data is due to be released on November 18.