Industry concerns over the impact of "eye-watering" levels of inflation have persisted, despite the latest Consumer Prices Index (CPI) update revealing that annual inflation had dropped from 10.4 per cent to 10.1 per cent.

The fall followed an unexpected increase in inflationary growth last month, primarily driven by rising food costs, which in turn prompted a further increase in interest rates to 4.25 per cent.

However, XPS Pensions Group pointed out that longer term expectations of inflation have remained broadly unchanged over the previous month, with future falls in inflationary growth having already been priced in.

Given this, it suggested that the latest CPI update is unlikely to have a material impact on pension schemes’ funding levels.

XPS Pensions Group senior consultant, Charlotte Jones, stated: “Although long-term inflation expectations have remained unchanged over the previous month, market conditions for defined benefit (DB) pension schemes are significantly more favourable today than they were a year ago.

“XPS’s DB UK funding tracker estimates funding improvements of c.£270bn in aggregate over the last year driven by the significant changes in long-term inflation and interest rate expectations.

"However, individual schemes will be impacted differently. With some relative stability in market conditions, it is important that schemes assess their funding position and opportunities to re-shape their long-term strategies.”

Adding to this, Barnett Waddingham chartered financial planning and self-invested pensions technical specialist, James Jones-Tinsley, clarified that while it seems inflation is finally moving in the right direction, policy makers and state pensioners will be holding onto their sighs of relief, as inflation is yet to hit single digits.

He continued: “September’s inflation figure should, under the current policy, dictate the state pension for the 2024 tax year.

"Pensioners should be hoping for a return to a more feasible rate of inflation by then, to enable the government to uphold the triple lock and secure a comfortable state pension increase next April. If inflation is still notably high, upholding the lock would look financially untenable.

“Of course, this is in the government’s political best interest too; unless their hand is forced by the economic reality, they won’t want to make any changes until after a general election.”

This was echoed by PensionBee CEO, Romi Savova, who stated:“Those hoping for relief from persistent inflation will be disappointed to see it fail to drop to single-digit levels last month.

"High inflation is hard to cope with day-to-day, but for savers trying to build long-term wealth, it is even more difficult to meet future retirement goals.

"Not only is it challenging to find the spare cash to make contributions, but it also makes it harder to generate a ‘real’ return above inflation, so the purchasing power of one’s pension is decreased.

"The recent rise in the state pension should provide some welcome support for pensioners, but as high inflation persists, covering the basics continues to be challenging for all, but particularly those on low, limited incomes.”

Despite the fall, Quilter Investors chief investment officer, Marcus Brookes, also argued that "this inflation problem is persisting and the fact is it remains at eye watering levels".

"With fairly punchy estimates and the government hitching its wagon to halving inflation by the end of the year, it will be hoping it falls at a faster rate than just a few decimal percentage points each month," he said.

“Nevertheless, consumer confidence is beginning to return and the economy may not be as harmed by this cost of living crisis as first feared. For as long as the economy can hold up, the Bank of England (BoE) will keep the option of interest rate rises firmly on the table.

“With the headline rate of inflation eventually coming down to hopefully more palatable levels, there will be an increased focus on what is going on under the bonnet with core inflation.

"This measure failed to shift in March and this will be a real concern to the BoE. Should that fail to fall meaningfully in the next couple of months, then more aggressive monetary policy from the BoE may be required yet again.”

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