Consumer price Inflation picked up to 3.1% in August, driven largely by higher fuel costs — a reminder that prices are still climbing faster than the Bank of England's target.

The rate at which prices are rising across the UK accelerated in August, with the Consumer Prices index (CPI) reaching 3.1% over the 12 months to August 2026, up from 2.9% in July. The figures, published by the Office for National Statistics (ONS) on 16 September, confirm that inflation remains meaningfully above the Bank of England's 2% target and that the cost of everyday life is still growing, even if less rapidly than at its recent peaks.

It is important to be clear about what a 3.1% inflation rate means. It does not mean prices are falling; it means the general level of prices was 3.1% higher than a year earlier. Inflation slowing would still leave prices rising, just more slowly. In August, inflation did not slow — it rose — so the pressure on household budgets intensified rather than eased.

What drove the increase

The largest upward push came from transport, and within that from motor fuels. The transport category's annual inflation rate climbed to 4.6% in August from 3.6% in July, as pump prices rose sharply. Petrol prices increased by around 9.1 pence per litre between July and August, while diesel rose by about 14.2 pence per litre — monthly movements large enough to shift the whole national inflation figure.

Housing costs also contributed. Owner occupiers' housing costs rose at an annual rate of 3.9% in August, up from 3.7%, and prices for electricity, gas and other fuels were 6.0% higher than a year earlier. These are unavoidable outgoings for most households, so increases there feed directly into the sense of a tightening squeeze.

Where prices held steadier

Not every part of the basket accelerated. Food and non-alcoholic drink prices were 1.3% higher than a year earlier, unchanged from July, and their contribution to the overall inflation rate — about 0.11 percentage points — was the smallest since September 2021. After a period in which grocery bills were a leading driver of inflation, food has become a relatively steadying influence.

Core inflation, which strips out energy, food, alcohol and tobacco to show the more persistent underlying trend, held at 2.6% on the CPI measure, unchanged from July. Services inflation, closely watched as a gauge of domestically generated price pressure, was steady at 3.4%. The stability in these measures suggests that August's jump was concentrated in volatile items, chiefly fuel, rather than a broad-based re-acceleration across the economy.

CPI, CPIH and why the labels matter

The 3.1% headline refers to CPI. A related measure, the Consumer Prices Index including owner occupiers' housing costs (CPIH), which the ONS regards as its most comprehensive inflation measure, stood at 3.3% in August, up from 3.1% in July. CPIH is higher because it includes the costs associated with owning and living in a home, which CPI leaves out.

The distinction is not mere statistical housekeeping. Depending on which index is used, the same month can be described as 3.1% or 3.3% inflation, and different official calculations — from benefit uprating to real-terms pay comparisons — draw on different measures. Reporting the two clearly, and not treating them as interchangeable, avoids overstating or understating how much prices have moved.

The hit to purchasing power

Inflation of 3.1% erodes the value of money and of pay. With average regular pay growing at 3.5% over the year to July, and inflation now at 3.1% on the CPI measure, the gap between the two is narrow. In practice, that leaves only a slim Margin of real-terms improvement for those whose wages are rising around the average, and none at all for anyone whose pay is rising more slowly or is fixed.

For households on fixed incomes, including many pensioners and people relying on savings, an increase in inflation is felt directly, because the prices they pay climb while their income does not automatically keep pace. That is the mechanism behind the phrase a squeeze on the wallet: not a single dramatic event, but the steady arithmetic of prices outrunning income.

What happens next

Because August's rise was driven so heavily by fuel, the near-term path of inflation will depend significantly on what happens to oil and pump prices — factors that are volatile and shaped by global events beyond the UK. If fuel costs stabilise or fall back, the upward pressure they exerted in August could fade; if they climb further, inflation could stay elevated.

For now, the verified position is straightforward. Inflation rose to 3.1% in August, its increase was concentrated in transport and fuel, and underlying measures such as core and services inflation were broadly stable. The ONS figures describe these movements; they do not forecast the months ahead, and any expectation about where inflation goes from here is an interpretation rather than a fact contained in the data.

Above target, and why that matters

At 3.1%, CPI inflation remains above the 2% target set for the Bank of England, and it moved further from that target in August rather than closer to it. The target framework means the Bank is expected to keep inflation close to 2% over time; a rate persistently above it is one of the considerations that inform decisions on interest rates, though the ONS figures themselves make no comment on Monetary Policy and it would be wrong to read any into them.

The gap between 2% and 3.1% may look small, but sustained above-target inflation compounds. Prices rising 3.1% in a year, on top of increases in previous years, mean the cumulative cost of living has climbed substantially over time, even during periods when the annual rate has come down from its peak. Households feel that accumulated effect, not just the latest twelve months. A further nuance is the base effect: because the annual rate compares prices now with prices a year ago, a sharp move that drops out of the twelve-month window can change the headline even when current prices are stable, which is one reason monthly figures are watched alongside the annual number. For households, the reality is simpler than any of these technical points: the things they buy cost more than a year ago, the increase has grown, and their money does not stretch as far.