2.2% inflation 'as good as it gets'

Households have been warned that figures showing inflation hit its lowest level for nearly three years in September were "as good as it gets" for some months, as rising energy bills are expected to push up the cost of living.

Official figures showed that consumer prices index (CPI) inflation fell to 2.2% last month, down from 2.5% in August and the lowest level since November 2009. But gas and electricity price hikes are expected to push it higher over the next few months after four of the "big six" energy firms announced price rises.

Experts predict energy bills, combined with rising food and petrol costs, will send inflation back up past 2.5% and even as high as 3.5%, before falling again later in 2013.

The timing of September's inflation low point is bad news for basic state pensioners and those on benefits, as the Government uses September's CPI figure to calculate their payment increases the following April.

State pensions increase by CPI inflation, wage increases or 2.5%, whichever is higher. This means that the current basic state pension of £107.45 a week is likely to rise by a minimum of 2.5% or just under £2.70 a week next year.

Last September, CPI inflation stood at 5.2%, meaning the uprating of benefits is likely to be much lower in April 2013 than it was this year, although the Government will announce its final decision in December.

Employment benefits such as jobseeker's allowance (JSA) and income support are also calculated using the September CPI rate, which means JSA is likely to increase by 2.2% to £72.56.

Howard Archer, chief economist at IHS Global Insight, said inflation had hit a trough, saying: "This may very well be as good as it gets on the consumer price inflation for the time being, as we suspect it could be pushed back above 2.5% in the near term by rising utility prices, likely higher food prices due to poor grain harvests and elevated petrol prices."

Economist Vicky Redwood at Capital Economics said she still expects CPI to fall below 2% in mid to late 2013 as wider economic pressures drag inflation lower.

The Treasury said September's fall in inflation would bring "welcome relief to the budgets of families and businesses". But, with September RPI linked to business rate rises for the following year, the British Retail Consortium (BRC) said this would mean retailers will be hit with an extra £175 million in costs in 2013. It said it could lead to more high street casualties and repeated calls for business rates to be frozen next year.