Inflation surged from 2.6 per cent in July, as measured by the Consumer Prices Index (CPI), thanks to the rising cost of clothing and airfares, according to the Office for National Statistics (ONS).
The pound jumped amid the latest cost of living figures, as the chance of the Bank of England raising interest rates appears to have increased.
Policymakers are worried inflation could surge too far above the official target of two per cent, hurting the budgets of millions of families in Britain.
Higher interest rates can help keep inflation in check.
At the last meeting two members of the Bank’s Monetary Policy Committee (MPC) voted for an immediate hike to rates.
Maike Currie, investment director for personal investing at Fidelity International, said: “The tightening squeeze on cash-strapped UK households continues, with August’s inflation figure showing the CPI (Consumer Price Index) climbing to 2.9 per cent, far out-pacing the growth on our pay packets.
“The spike in prices is due to rising prices for clothing and petrol. The holiday season also saw a rise in air fares.
“The thorny issue of inflation will be the driving force behind any rate rise decision on Thursday.
“Economists have suggested that now is finally the time that the Bank takes a more hawkish turn, after eight and a half years of ultra-loose policy.”
Now all eyes will be on the outcome of the September MPC meeting and whether more than two of the nine members will vote for a rise in rates.
Paul Hollingsworth, UK economist at Capital Economics, said: “Today’s figures are likely to provide further ammunition to the more hawkish members of the MPC at this Thursday’s meeting, and as a result we expect the vote to be split once again.
“Indeed, we wouldn’t rule out the possibility of Andy Haldane joining Michael Saunders and Ian McCafferty in voting for a hike.
“However, we don’t think the rise in CPI inflation has much further to run.
“Indeed, we expect it to peak at 3.1 per cent in October, before dropping back next year as the impact of the pound’s fall starts to fade.”