Inflation last month was higher than expected, keeping household budgets under pressure even before the next round of energy bill increases come in this winter.
Official statistics show the consumer price measure of inflation put prices in September at 2.7% higher than a year ago. That was unchanged from August and defied expectations for inflation to edge down to 2.6% in a Reuters poll of economists.
The Office for National Statistics said the main upward pressure on prices came from airfares falling by less than a year ago, offset somewhat by falling petrol and diesel prices. But overall inflation remained above the Bank of England's target of 2% for a 46th straight month. The broader measure of inflation, the retail price index (RPI), slowed to 3.2% from 3.3%, as expected.
The stronger-than-expected CPI inflation rate sent the pound higher and gilt prices lower as traders raised their bets of interest rate rises in the future and of the Bank holding off on any further bond-buying stimulus to the economy. Some economists said continuing price pressures increased the likelihood of the Bank raising interest rates from their record low of 0.5% sooner than its forward guidance scheme would suggest.
James Knightley at ING Financial Markets said: "The main risk is utility bills, which could rise sharply in coming months and keep inflation remaining well above the 2% central target. With house prices continuing to rise … and tomorrow's labour report set to show ongoing job gains, we continue to look for an early 2015 rate hike."
While households brace for the lastest utility bill rises, there were some suggestions in the official data on Tuesday that price pressures will ease further out. The ONS also published producer price data that showed inflation in prices charged at the factory gate slowed to 1.2% last month, undershooting the forecast for 1.3%.
Chris Williamson, an economist at Markit, said: "The rate of growth of manufacturers' selling prices has eased markedly in recent months, down from 2.1% in July, and this easing in so-called industry pip-line price pressures suggests that consumer price inflation may also cool in coming months.
"However, against this is the worrying price of oil and energy. With Brent crude trading at an average of $111 per barrel in October, oil is trading at a price that is historically consistent with inflation running higher than 2-3%. Add to this the widely reported anticipated increases in domestic utility bills, there is a significant risk that we can see inflation remaining stickier than the Bank is currently expecting."
Adding to a series of house price indicators that suggest the property market is hotting up, at least in some areas, the ONS said house prices rose 3.8% in the year to August. That was the fastest rise for almost three years and is likely to be seized on by critics of George Osborne's Help to Buy housing loans scheme, who fear it could create a bubble.
The Treasury sought to highlight the longer-term trend in inflation.
A spokesman said: "Inflation has fallen and is nearly half of its peak of 5.2%. The economy is turning a corner, but risks to the recovery remain high."
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