The large increases in retail gas and electricity prices that are predicted for next year will directly add over 1 percentage point to headline inflation over the year to September 2023. Because energy is an input to many of the goods and services we buy, there will also be second-round effects as businesses increase their prices in response.
These effects are uncertain, but the secondround contribution of electricity prices to underlying inflation could be around ½ percentage point over 2024. Rental price inflation has also picked up and is expected to increase further over coming quarters (Graph 7). Rental vacancy rates have declined since the beginning of the year and are at historic lows in a number of cities.