UK Inflation Creeps Up on Rising Fuel Costs
UK inflation rose back above 3% in August, driven by higher fuel costs. The Office for National Statistics reported that headline inflation increased to 3.1%, with a 7% month-on-month rise in fuel prices.
However, energy price increases do not appear to be broadening out to other parts of the inflation basket. Food inflation, for example, fell to 1.1% year-on-year in August, and producer price data suggests it may even turn negative in the near term.
Services inflation is also benign, with the Bank of England's 'core services' metric tracking higher than the headline services index. Wage growth remains contained, which should help keep services inflation in check.
The UK economy seems less susceptible to second-round effects compared to four years ago during the Ukraine shock. The Bank of England may not need to hike interest rates due to the latest data, but energy prices staying high for several weeks could change that picture.