The headline consumer price index was 9.9 percent higher than a year earlier during the month, down from a 40-year high of 10.1 percent in July, the first drop in the inflation rate in nearly a year . UK inflation was still the highest in the G7 in August. The data was better than expectations for a small rise to 10.2 percent, and economists now expect inflation to hover in the low double digits during the fall rather than rising to more than 15 percent. The better outlook for inflation is a result of Prime Minister Liz Truss’ plan to spend up to £150bn to protect consumers from huge energy price rises in October by capping the typical annual household at £2,500 rather than letting it rise to £3,549. In August, the main reason for the drop in headline inflation was the drop in petrol and diesel prices. A liter of petrol fell from an average price of £1.90 in July to £1.75 during the month, reducing inflation in this category from 43.7 per cent to 32.1 per cent. But in other categories, inflation was still rising. The Office for National Statistics said food inflation rose from an annual rate of 12.8% in July to 13.4% and prices of services were 5.9% higher in August than last year, compared with 5.7% inflation in July. It is this increase in pressure on the prices of goods and services, excluding prices most affected by volatile oil and energy prices, that will worry the Bank of England beyond the increase in spending power that energy support and future government tax cuts will bring. Paul Dales, chief UK economist at Capital Economics, said: “UK headline and core CPI inflation have not yet peaked. . . So the Bank of England will have to keep turning the screws.” Economists expect a 0.5 percentage point hike when the bank’s Monetary Policy Committee meets next week, with the official rate expected to rise from 1.75% now to at least 3% by the end of the year.

Kitty Ussher, chief economist at the Institute of Directors, said: “The fact that the nominal interest rate has fallen is due to changes in the price of petrol and diesel. . . means today’s news is unlikely to change expectations for a rate hike at next week’s Bank of England meeting.” With petrol prices falling but food inflation rising, the Resolution Foundation said the figures showed cost-of-living pressures on poorer families were still rising. Jack Leslie, senior economist at the foundation, said: “High inflation is going to be with us for some time, particularly for low income earners who continue to be hit hardest by high prices.” Other data released by the ONS showed the effects of falling global oil prices helping industry, with producer costs and output prices falling for the first month for almost two years. Input prices were still 20.5% higher in August than last year.