Inflation measures the rate at which the price of goods and services have risen over time – with the latest data being released today
UK inflation rose last month due to higher petrol and diesel prices following the Iran war.
Consumer Prices Index (CPI) inflation reached 3.3% in March, according to new data from the Office for National Statistics (ONS) – up from 3% in February.
It marks the first time inflation figures have included higher costs from the Middle East conflict.
The war has led to a sharp increase in oil prices, following disruption to the Strait of Hormuz, which has subsequently sent petrol and diesel costs soaring in recent weeks.
RAC data from Tuesday shows the average price of petrol at UK forecourts was 157.57p per litre, while diesel was 190.13p per litre.
Both have fallen slightly from peaks of 158.31p for petrol and 191.54p for diesel, but are still much higher than before the war started on February 28, when the average cost was 132.83p and 142.3p, respectively.
Grant Fitzner, chief economist at the ONS, said: “Inflation climbed in March, largely due to increased fuel prices, which saw their largest increase for over three years.
“Airfares were another upward driver this month, alongside rising food prices. The only significant offset came from clothing costs, where prices rose by less than this time last year.
“The monthly cost of both raw materials for businesses and goods leaving factories rose substantially, driving by higher crude oil and petrol prices.”
Last month, the Bank of England said inflation is likely to rise to as high as 3.5% by the third quarter of this year.
The Bank has a target of 2% inflation. It comes as energy prices are expected to rise this summer, following a rise in wholesale gas prices.
The Ofgem price cap is currently set at £1,641 per year for the typical household. Analysts at Cornwall Insight currently predict this could rise to £1,836 from July.
What is inflation?
Inflation measures the rate at which the price of goods and services have risen over time. For example, if inflation is 3% and an item cost £1 last year, it means that item would cost £1.03 now.
But importantly, when inflation goes down, it does not mean prices have stopped rising – it just means they are still going up, but just more slowly than below.
The ONS calculates inflation based on a regularly updated “basket of goods” and services that represents what households are buying.
The main inflation figure you see in headlines is used to represent an average. This means the individual prices of some goods may be higher or lower than this main figure.
How is inflation linked to interest rates?
The Bank of England base rate, which impacts the interest rates used by banks and lenders, is currently at 3.75%.
It last cut rates to this level in December 2025 and had been expected to announce further reductions this year, but analysts now say this has become less likely.
The Bank held interest rates at 3.75% at its last two meetings in February 2026 and March 2026.
At its peak during the cost of living crisis, the base rate reached 5.25%. The Bank uses its base rate to keep inflation near its 2% target.
The idea is that, when interest rates are higher, borrowing becomes more expensive and this means people have less money to spend elsewhere.
When people spend less money, this brings down demand and lower prices, which lowers inflation.
But higher interest rates have pushed up mortgage payments for millions of homeowners, leaving households financially stretched. The base rate stood at just 0.1% in December 2021.
It reached a peak of 5.25% in August 2023 but has since been cut six times to its current level of 3.75%.
