Higher fuel costs set to drive uptick in August inflation

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UK inflation is set to have accelerated further last month as higher fuel costs linked to the conflict in the Middle East and more expensive electronics pushed up the cost of living.

The Office for National Statistics will reveal the latest rate of UK Consumer Prices Index (CPI) inflation on Wednesday.

It is expected to reveal that inflation rose to 3.1% in August, from 2.9% a month earlier, according to a consensus of analysts compiled by Pantheon Macroeconomics.

It would point towards a continued upwards trajectory for inflation since reaching a 15-month low of 2.6% in June.

Economists have suggested that the fresh figures are likely to show the early impact of the breakdown of the US-Iran ceasefire.

Oil and gas prices have ticked higher since the US-Iran ceasefire deal collapsed on July 8.

Oxford Economics’ Andrew Goodwin said he expects the data to show a significant uplift linked to higher petrol and diesel costs for motorists.

“Weekly data from the Department for Energy Security and Net Zero suggests that fuel prices rose 7% month-on-month between July and August, and we expect this to add around 0.2 percentage points to CPI inflation,” he said.

Airfares are also likely to have swung higher in August following weaker pricing in July, with higher jet fuel costs also feeding into ticket prices.

Experts at Pantheon Macroeconomics also suggested that so-called “AI-flation” could also be a factor.

Rob Wood, chief UK economist for the company, said they believe higher electronics prices, linked to chip shortages amid the AI boom, could add 0.2 percentage points to inflation.

Analysts at Deutsche Bank said: “After broadly matching expectations in July, we see price momentum pushing up again in August.

“Some goods inflation, food inflation and a chunky rise in energy prices will likely see inflation take another small step higher to round up the summer.”

The banking giant predicted that CPI will peak at around 3.5% year-on-year in November as further price pressures, such as another rise in household energy bills in October, come into effect.

Projections for rising inflation have contributed to heightened expectations that the Bank of England could increase interest rates in the coming months.