Change in energy price cap causes rise in inflation
A SHIFT in the energy price cap from the Office of Gas and Electricity Markets (Ofgem) has caused inflation to tick back above 3% for the first time since March, according to the Office for National Statistics (ONS).
Covering the 12 months to the end of July, the consumer price index including housing costs (CPIH) figure stood at 3.1%, up from June’s 2.8% which was recorded by the end of that month.
While there were noticeable decreases across the food and non-alcoholic beverages and transport sections, these still weren’t enough to off-set the impact that the rise of the energy price cap has had.
The change in the price cap has caused Ofgem to estimated that an average household will have an annual bill of £1,862, representing a rise of £221 since the previous cap.
The ONS has said that the price cap has risen due, in part, to higher wholesale energy prices. The 12-week assessment period used by Ofgem to calculate the September price cap was from 18 February to 18 May meaning this was the first assessment period where prices had escalated as a result of the US-Israeli war in Iran.
The increase was the largest rise in gas prices since October 2022, when UK consumers were feeling the impact from the War in Ukraine. This means that gas prices are now at their highest level since March 2024.
Harvir Dhillon, lead economist at the British Retail Consortium, said: “Last month, inflation rose for the first time since March, in large part due to the lifting of the energy price cap.
“Keeping inflation under control must be an urgent priority for this government. Retailers have competed fiercely and managed to keep the cost of food and essentials down for shoppers, but the rising cost of government policies puts this in jeopardy.
“The upcoming Budget is a crucial test. If ministers can reduce the cost of doing business by slashing standing charges on energy bills, cutting the cost of employment and rebalancing the business rates burden away from retail, those savings can be passed directly to customers at the checkout, keeping inflation at bay for households continuing to face rising bills.”
While household energy prices were up, there was some good news to be found at the pumps in July. Prices in the transport division were down on a monthly basis and sat at 3.6% by the end of July. This was a considerable drop from June’s figure of 5.7%.
The largest downward effect behind this came from motor fuels, particularly diesel. Between June and July, the average price of diesel fell by 8.8 pence per litre (ppl), compared to the same period in 2025 which saw a rise of 2.9ppl. The average price stood at 167.6ppl in July.
Similarly, petrol prices crept down in July, falling by 3.1ppl compared to the rise of 2ppl which was seen in 2025. The average price of petrol stood at 152.2ppl in July.
And furthermore, food and non-alcoholic beverages continued to decrease as well on a monthly basis to sit at 1.3% by the end of July, down from June’s 1.7%.
There were some small downward effects behind the change across three of the 11 food and drink classes, namely: meat, particularly meat of cows and breaded chicken; vegetables; and sugar, jam, honey, syrups, chocolate and confectionery.
There were some small upward effects from the breads and cereals category, and from fish, but these were not enough to offset the total figure.
This decrease has been mirrored by the latest UK data from Worldpanel by Numerator, which found that grocery price inflation slowed to 2.1% during the four weeks to 9 August, marking the lowest rate since October 2024.
Sally Ball, business unit director at Worldpanel by Numerator, said: “With inflation slowing again, this marks the fifth consecutive month of easing prices. Shoppers are feeling the relief with 39% now feeling financially comfortable, marking the highest level of financial confidence since November 2021. But it’s by no means the same picture for all, with 20% reporting that they are struggling, and this has a clear impact on spending decisions.”
