Annual inflation in August remained at 2.2 percent, the same as the annual growth rate in July. Also, the consumer prices index, including owner occupiers' housing costs (CPIH), increased by 3.1 percent year-over-year, consistent with July's rate. The CPIH and CPI monthly inflation rates increased by 0.4 percent and 0.3 percent, respectively, in line with the August 2023 inflation rate.

The increase in airfares was substantial, reversing the decline of the previous year. Inflationary pressures were mitigated by motor fuel prices, restaurants, and hotels. Core CPIH, which excludes volatile components such as energy, food, alcohol, and tobacco, increased from 4.1 percent in July to 4.3 percent. This increase was primarily due to an increase in service costs, which increased from 5.7 percent to 5.9 percent. However, goods prices experienced a more significant decline, going from minus 0.5 percent to minus 0.9 percent. In the same vein, the core CPI increased from 3.3 percent to 3.6 percent, with services inflation increasing to 5.6 percent and commodities inflation falling further into negative territory, from minus 0.6 percent to minus 0.9 percent.

Today's data make a cut in Bank Rate tomorrow all the more unlikely and most MPC members will want clear signs of easing core and service sector inflation for giving the nod to another ease before year-end. The RPI fell to minus 12 and the RPI-P to minus 28, both measures below market expectations.

A 2.2 percent overall rate in July was up from 2.0 percent in June but was no surprise for the Bank of England which had already expected headline inflation to rise over the latter half of the year. August's consensus is no change at 2.2 percent.

The consumer price index (CPI) is an average measure of the level of the prices of goods and services bought for the purpose of consumption by the vast majority of households in the UK. It is calculated using the same methodology developed by Eurostat, the European Union's statistical agency, for its harmonised index of consumer prices (HICP). The CPI is the Bank of England's target inflation measure.

The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as the UK, where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer. Inflation is an increase in the overall price level of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.

Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.

By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.

For monetary policy, the Bank of England generally follows the annual change in the consumer price index which is calculated using the European Union's Eurostat methodology so that inflation can be compared across EU member states.