Inflation has risen in July, with prices rising 1 per cent year-on-year, according to the latest figures from the Office of National Statistics
This is a significant increase on the 0.6 per cent recorded in June, but the effects of the Covid-19 pandemic and subsequent economic turmoil, are making it difficult to predict trends in the months ahead.
This could impact pensions, with most inflation-linked pensions — including the state pension and those with public sector pensions — linked to September’s inflation figures.
Aegon pensions director Seven Cameron says: “While today’s figures showed that consumer price inflation rose to 1 per cent for the year to July, the impact of Covid 19 and and lockdown measures restricting what we can spend money on is making it hard to predict inflation figures month on month.
“The coming months’ figures are critical for pensioners though as public sector pension increases are based on CPI figures to September published in October and there’s an expectation inflation will nose dive, with the Bank of England’s Monetary Policy Report outlining it may drop to minus 0.3 per cent for the year to August.
“State pensions increase by the triple lock (the highest of price inflation, earnings growth or 2.5 per cent) and again, it’s the September inflation figure which is used here.”
He points out that if inflation and earnings growth are particularly low or even negative, the underlying 2.5 per cent guaranteed increase will come at a significant cost to the Government on top of their other Covid-19 bailout measures, and may put significant pressure on the future of the triple lock.
“While a bigger inflation increase compared to last month may raise hopes, pensioners will need to hold their breath to find out what future months hold in store,” he adds.