Inflation Rises to 3.2% in August

Published / Last Updated on 15/09/2021

The Office for National Statistics has this morning released UK inflation figures for August 2021. 

The Consumer Prices Index (CPI) rose from 2.1% pa in July to 3.2% pa in August, a significant leap.  Likewise CPIH, which is consumer prices plus housing costs climbed to 3.0% pa from 2.1% pa in July.  The significant leap has been put down to increases in food, hotels, restaurants, recreation and culture according to the Office for National Statistics (ONS).

Retail Prices Index (RPI) reached a staggering 4.8% pa in August from 3.8% pa in July.


We should not forget that in August 2020, we had ‘Eat Out to Help Out’, where people where getting half priced food and soft drinks when eating out, so the inflation rate is a ‘skewed’ increase and perhaps not reflective of the underlying economy.  That said, during the pandemic, more people built have been up savings nest eggs and with staycations this year, more money has clearly been spent in the UK by holidaymakers on hotels, restaurants and leisure.

Whilst RPI is no longer an official statistic, we believe it is a better benchmark for inflation as it is a straight line average prices increase across a select baskets of goods and services i.e., the price of goods and services are simply added up and then divided by the number of items, whereas CPI is a geometric mean i.e. it is the sum of all prices and then the nth root of the total.  CPI is a weighted ‘mean’ average meaning larger priced items have more effect that smaller priced ones.  RPI means you are spending 4.8% more this year than last year on exactly the same goods and services.

Given this, whilst pressure will mount on the Bank of England to increase interest rates at the coming Monetary Policy Committee meeting of the Bank of England on 23 September, there may be a thought process that August’s inflation figures are a one off, or certainly that will be the reason to justify no interest rate increases.

You know our thoughts, many governments are unlikely to increase interest rates for at least another year as they want inflation to build to devalue public sector covid debt over the coming years.

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