On benefits? Why this month’s inflation figure is so important for you

Inflation remained steady at 3.8% last month. While the cost of living always has an impact on our finances, the September inflation figure holds particular importance for millions of people.

This is because, as well as affecting prices in shops and influencing interest rates, it also generally dictates how much benefits and the state pension will rise the following April.

How much will my benefits go up?

By law, the amount paid in certain benefits, including personal independence payment, disability living allowance, carer’s allowance and attendance allowance, should rise by at least the same rate as prices.

Universal credit also usually increases in line with inflation, but that decision lies with government.

If universal credit does go up by 3.8%, the standard allowance if you’re a single person over the age of 25 will rise from £400.14 a month to about £415 a month. And the standard allowance, if you’re a couple aged over 25, will increase from £628.10 a month to around £652 a month.

The total amount you’ll get will depend on your situation – whether you’re working, if you have children or a disability etc. By adding 3.8% to your current payment, you should get a good idea of how much you’ll get from April onwards.

Bigger rise for state pension

If you’re getting the state pension, you can expect your payments to go up by more than 3.8%. That’s because the annual rise in the state pension is governed by the triple lock.

Under the triple lock, the state pension goes up each April by either 2.5%, the previous September’s inflation figure, or earnings growth in the preceding July – whichever is highest. As earnings growth in July was 4.8% (originally announced as 4.7% but later revised), this is the figure that will be used.

This means the new full state pension (for people who reached state pension age after April 2016) is set to rise from £230.25 a week to £241.30 a week, and the old state pension (for people who reached state pension age before April 2016) will increase from £176.45 a week to £184.75 a week.

What is inflation?

Inflation shows how much prices have gone up over time. It’s measured by tracking the costs of a selection of everyday items compared to the year before.

What does the latest figure mean?

The Bank of England (BoE) has a target of 2% for inflation. As September’s figure was nearly double that, it means the BoE may be less inclined to cut interest rates, keeping the cost of borrowing high.

Although you're unlikely to notice a difference at the checkout, the cost of food actually fell 0.2% compared to August - the first time there's been a monthly drop since May last year. And, on an annual basis, the rate at which food prices are increasing slowed for the first time since March - from 5.1% in August to 4.5% in September. Rather than food, last month, it was the high cost of petrol and air fares playing a leading role in keeping inflation well above target.

Despite slightly cheaper food, inflation of 3.8% may not seem like great news if you’re struggling to make ends meet. Having said that, today's figures are not as bad as they could have been. Experts had widely predicted an overall rise of 4%, meaning Rachel Reeves may allow herself a small sigh of relief as she prepares for next month’s budget.