UK inflation rose to 3.1% in August, reaching its highest level in five months as motorists faced sharply higher petrol and diesel prices.
The annual Consumer Prices Index increased from 2.9% in July, according to figures released by the Office for National Statistics.
The increase leaves inflation above the Bank of England’s 2% target and adds to pressure on household budgets. However, measures of underlying inflation remained stable, offering some reassurance that higher energy costs have not yet spread widely across the economy.
Fuel and airfares drive the increase
Transport costs made the largest contribution to the August increase.
Average petrol prices rose by about 9p between July and August to 161.3p a litre. Diesel increased by more than 14p to 181.8p a litre, according to figures reported by The Guardian.
Motor fuel prices were approximately 23% higher than a year earlier, reflecting the effect of rising global oil prices and continuing instability in the Middle East.
Airfares also increased, particularly on long-haul routes. Prices rose by 6.2% between July and August, contributing further to the increase in the headline inflation rate.
Underlying inflation remains stable
Core inflation, which excludes volatile components such as food and energy, remained at 2.6% for the fourth consecutive month.
Services inflation also held at 3.4%. The Bank of England monitors services inflation closely because it can provide evidence of domestic wage and pricing pressures.
The unchanged figures suggest that the rise in energy and transport costs has not yet produced a broader acceleration in prices.
Reuters reported that financial markets saw only a limited chance of an immediate increase in interest rates following the inflation release.
Pressure building for manufacturers
Price pressures were more pronounced among manufacturers.
The prices charged for goods leaving factories rose by 3.7% over the year to August. Manufacturers’ input costs, including energy and raw materials, increased by 6.1%.
These increases could eventually reach consumers if businesses pass their higher operating costs into retail prices.
Further pressure may also emerge when domestic energy bills adjust to earlier increases in wholesale gas and electricity prices. Household energy tariffs often respond to global market movements after a delay.
Bank expected to hold rates
The Bank of England is due to announce its next interest-rate decision on 17 September. Its official guidance confirms that Bank Rate currently stands at 3.75%.
Economists widely expect policymakers to leave the rate unchanged while assessing whether higher energy costs are beginning to affect wages, services and wider consumer prices.
Stable core and services inflation may reduce the case for an immediate increase. However, persistently high fuel, energy and manufacturing costs could strengthen pressure for tighter monetary policy later in the year.
For households, the latest figures mean prices are continuing to rise faster than the Bank’s target, with transport and energy costs presenting the clearest immediate threat to living standards.
