UK inflation increased in the past month following a surge in petrol and diesel prices due to the Iran conflict. The Consumer Prices Index (CPI) inflation rose to 3.3% in March, up from 3% in February, as reported by the Office for National Statistics (ONS). This is the first time inflation data has reflected the impact of the Middle East turmoil.
The escalation in oil prices resulting from disruptions in the Strait of Hormuz led to a significant rise in petrol and diesel costs in recent weeks. According to RAC data, the average petrol price in the UK was 157.57p per litre, while diesel was 190.13p per litre. Although slightly lower than previous peaks, these prices remain substantially higher than pre-war levels.
Grant Fitzner, the ONS chief economist, attributed the March inflation increase to elevated airfares influenced by rising jet fuel costs and food prices. This inflation figure aligns with economists’ forecasts and represents the highest rate since December last year.
The Bank of England anticipates inflation to climb further, potentially reaching 3.5% by the third quarter of this year, surpassing its 2% target. Energy prices are also expected to surge, with the Ofgem price cap projected to rise from £1,641 to £1,836 in July.
Chancellor Rachel Reeves highlighted the indirect impact of the Iran crisis on household and business expenses, emphasizing the government’s commitment to cost containment through various measures. These efforts include reducing energy bills, freezing rail fares, and shielding motorists from fuel duty hikes.
Inflation measures the rate of price increases for goods and services over time, with the ONS using a “basket of goods” to calculate the consumer price index. The Bank of England base rate influences interest rates and inflation control strategies, currently standing at 3.75%.
Higher interest rates aim to curb spending, reduce demand, and lower inflation, but they can strain homeowners with increased mortgage payments. The base rate, which hit 5.25% during the cost of living crisis, is now at 3.75%, reflecting the Bank’s inflation management approach.
