What's going on?

Following news on Tuesday that inflation, i.e. the rate at which prices rise, in the United Kingdom accelerated in August to one of its fastest paces so far this year, the pound jumped in value against other major currencies (find out why below) � even hitting a one-year high against the US dollar.

What does this mean?

In August, consumer prices jumped by 2.9% compared to where they were a year ago; that�s a tie for the biggest increase so far this year, and the likes of which haven�t been seen in the UK since 2012. Rising prices for clothing as well as for petrol were the main contributors to the increase, although the price of every category of consumer good and service jumped versus last year. This higher inflation is due, in part, to the Brexit referendum, which has caused the value of the British pound to sink and, in turn, for British imports to jump in price.

Why should I care?

For markets: The pound shot about 1% higher on Tuesday � as higher inflation makes higher interest rates more likely.

Tuesday�s news makes it more likely that the Bank of England will increase interest rates in an effort to curb the price rises: higher interest rates make it more expensive to borrow � and therefore spend � money, which makes it harder to pay more for products. However, higher interest rates are typically attractive to international investors (curious why? click here), and the increased likelihood of a rate hike appeared to incentivize them to buy more of the pound on Tuesday, pushing its value up.

The bigger picture: More expensive metals are likely to feed into higher inflation worldwide.

The UK statistical authority also said that this month�s increase was, in part, caused by the increasing prices of metals like copper, iron ore and tungsten. The significant recent increase in metal prices, which are key ingredients in lots of everyday products, will likely make these goods more expensive and put upward pressure on inflation in virtually all countries in the coming months.