Inflation expected to hit three-year high

  Inflation is expected to hit a three-year high today, landing the Government with a bumper bill for increased state benefits and underlining the squeeze on household incomes.

 

  September's consumer prices index (CPI) will be used to determine next April's rise in the basic state pension, piling pressure on the public purse but bringing some relief for hard-pressed pensioners.

Based on City forecasts for CPI of 4.9%, the basic single state pension will increase by £5 to £107.15 a week, while the joint state pension will increase by £8 to £171.35.

Employment benefits, such as Jobseeker's Allowance (JSA) and income support are also calculated using the September CPI rate, meaning the JSA could increase by £3.31 to £70.81 a week.

Elsewhere, Sir Mervyn King, governor of the Bank of England, which is tasked at keeping inflation down, is expected to mount a strong defence of the Bank's handling of the economic crisis in a keynote speech later tonight.

Next year's benefit rates are not formally unveiled until later this year and will be the first to be calculated using CPI rather than retail prices index (RPI) rate of inflation, which is expected to rise from 5.2% to 5.4% in September.

If the calculation was still based on RPI at 5.4%, the single state pension would have been £107.67 and the joint one would have been £172.17.

Dave Prentis, general secretary of Unison, said: "The move from RPI to CPI to calculate pensions inflation will take millions out of pensioners' pockets – just as we need people to be spending to kick-start our flagging economic recovery."