Inflation gorges on grocery price hikes, and eats savings alive – but there’s hope

CPI inflation rose back into double figures again in September – 10.1%. This month’s inflation tends to be the basis of rises in benefits – as well as being part of the triple lock on state pensions. Savings may keep pace with inflation. Petrol prices ease again. Groceries feed higher inflation. Energy prices power on. 12 Eye-watering price rises at the supermarket.

The ONS has released inflation figures for September: Consumer price inflation, UK – Office for National Statistics

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown: “Inflation is back in double figures, rising at almost twice the rate of wages, and stretching us all to breaking point. People on the lowest incomes wait in limbo to see whether their benefits will get the boost they need to stop their finances plummeting over a cliff edge. Meanwhile, those on average incomes are facing an increasingly impossible challenge every month to make ends meet, and anyone with savings is watching inflation eat their money alive. Fortunately, for savers at least, there’s more positive news.


Anyone who has been struggling and stretching their benefits after April’s rise of just 3.1% will be holding out a desperate hope for a 10.1% rise next April. It’s bad enough that they will need to wait until next April for a rise of any kind. However, the arrival of the current chancellor has thrown even that into doubt.

We’re still holding on for confirmation that benefits will rise with inflation. When you’re relying on benefits to make ends meet, life is uncertain enough. Given that those benefits were frozen for years, life is even harder. It’s horrible that so many people whose finances are on a knife edge have to have to wait to hear their fate like this.

Separately, Jeremy Hunt has pledged that support will be focused on the most vulnerable. It’s incredibly difficult to see how that wouldn’t include those who are skipping meals and relying on food banks during a time of rocketing prices. But one thing that the past few weeks has taught us is that it’s difficult to make any safe assumptions right now.

Savings may keep pace with inflation

With inflation at 10.1%, the highest savings rate on the market over five years offering just over 5%, and the best one-year fix at just under 5%, you’d be forgiven for being disappointed that savings rates are so far off keeping pace with inflation. But things aren’t as bad as they seem.

Inflation looks backwards – at how prices have changed over the past year, while savings rates look forwards – and are fixed for the future. It means you don’t necessarily need 10.1% to beat inflation in the year to come.

In the short term we can expect inflation to stay higher, especially when the energy price guarantee ends in April. However, as we go through 2023, the struggling economy, along with government belt-tightening, may well mean inflation rates drop back. Some forecasts put inflation closer to 5% by the end of the year. It means that you may well be able to get close to inflation with the most competitive savings accounts – the key is to simply to make the most of your money right now.

Whatever else happens, your emergency savings safety net of 3-6 months’ worth of essential expenses needs to be in an easy access account. However, you don’t need to settle for a high street giant paying less than half a percent. You can make 2.75% in the most competitive account.

Beyond that, for money you need for planned expenses over the next five years, you can consider tying it up for the periods that make the most sense for you, in return for more interest. Right now, you can make 4.75% by fixing for a year. At a time of rising rates, you may be tempted to put off fixing until rates rise further, but if you need the cash in a year, it makes sense to fix now to make the most of growth over the next 12 months.

The period of time you fix for should be designed to suit you. The short-term fixed rate market is particularly competitive, at the moment, and you don’t get much of a premium for fixing for longer. However, by the same token, if rates fall back over the next five years, you may be glad you fixed at a relatively high rate while you could.

Some people will choose to move some of their cash into a competitive easy access account and wait, while fixing other chunks of their cash for different periods. This offers a mixture of certainty and opportunity, although you need to be clear exactly what rate you’re ready to fix at, and how long you’re prepared to wait – or you could end up moving too late.

For any money you won’t need for 5-10 years or more, it’s worth at least considering investment for some of it. The values will rise and fall, and in the short-term you may lose money, but if you’re in it for the long term, it stands a better chance of keeping pace with inflation.

Petrol prices ease again

Petrol prices eased again because threats of a looming worldwide recession dominated and depressed oil prices slightly. This doesn’t mean a bonanza on the forecourts, because Russia’s invasion of Ukraine and the subsequent sanctions mean supplies are still much lower, so petrol prices are still up 23.4% in a year and diesel 32.2%. However, we pulled back from the peak – when petrol was up 42.9% in a year back in July. Unfortunately, we already know these lower prices didn’t last, because Opec decided to cut production in October. So your experiences at the petrol pump today are likely to be less positive.

Groceries feed higher inflation

Food and non-alcoholic drink fed even higher inflation – up 14.5% in a year. The rate of food inflation has accelerated every month for the past 14 months, and hit a 14-year-high. This month, it made the biggest contribution to rising inflation of any spending sector. We saw some really painful rises in the price of some essentials including milk up 42.1%, margarine 30.1% and cheese 23.1%. Ever since higher inflation kicked in, food has been the price rise we have felt most keenly, with 95% of people saying they’ve seen prices rise at the supermarket. It’s one reason why three quarters of us now say we’re worried about the cost of living, and 40% of us are spending less on the essentials (all ONS figures).

Those on lower incomes are hit harder, because they spend a disproportionate amount of their income on the essentials, and once they have traded down and shopped around for food, they’re left with truly horrible choices about what they can live without in their weekly shop.

Energy prices power on

The Energy Price Guarantee kicked in from October, along with the lump sum payments to see us through the winter, but prices are still higher. They were bad enough in September, when we were wrestling with gas bills that had almost doubled in a year and electricity prices which had risen by around half. At this level, 42% of people have found it at least somewhat difficult to pay their energy bills (ONS).

The news that the Energy Price Guarantee will only last until the spring is particularly alarming for those on average incomes. Right now, the wholesale price of gas has backed off from the peaks, on the back of milder weather across Europe. However, we can’t rely on this becoming a trend, because so much depends on incredible uncertainties. There is still a chance that October’s price rises could just be the start of even more pain to come.”

12 Eye-watering price rises at the supermarket

  • Low fat milk 42.1%
  • Margarine and other vegetable fats 30.5%
  • Whole milk 30.2%
  • Flour and other cereals 29.6%
  • Jams, marmalade and honey 28.1%
  • Offal 28.1%
  • Butter 28%
  • Olive oil 27.2%
  • Cheese and curd 23.1%
  • Pasta and couscous 22.7%
  • Eggs 22.3%
  • Sauces 22.1%