UK inflation rose to 2.9% in the year to July, up from 2.6% in June, according to the latest figures from the Office for National Statistics (ONS).

It is the highest inflation rate since March and puts inflation further above the Bank of England's 2% target.

The rise was broadly in line with expectations.

For small businesses, the headline figure matters because persistent inflation can put pressure on operating costs, wages and margins. But 2.9% does not mean every business is facing a 2.9% increase in its costs.

Why has inflation risen?

The biggest driver was energy.

The increase in the domestic energy price cap in July pushed up gas and electricity prices, with gas prices 14.7% higher than a year earlier.

There were other upward pressures too. Furniture prices fell less than they normally do at this time of year, while clothing prices also saw smaller discounts than usual.

Some areas moved in the opposite direction. Food inflation fell to 1.3% from 1.7% in June, its lowest rate in almost five years. Transport inflation also eased.

That mixed picture is important for small businesses because the effect of inflation depends heavily on what a company buys.

What does it mean for small businesses?

There is no single “business inflation rate”.

A café buying food, a manufacturer buying materials, a courier paying for fuel and a professional services firm with a large wage bill will all be exposed to different costs.

The 2.9% headline figure is therefore less important to an individual business than what is happening to its own cost base.

For businesses with significant energy or fuel costs, recent price movements could put pressure on margins. Businesses that rely heavily on staff may be more concerned about wage costs, while those with substantial borrowing will be watching interest rates.

The key issue is what happens when those higher costs aren't passed on to customers.

If costs rise but prices stay the same, margins get squeezed. For a small business already operating on tight margins, even relatively modest increases can make a noticeable difference to profitability.

What about wages?

There is some better news here.

Separate figures released this week showed private-sector pay growth slowing to 2.8%, its lowest rate in six years.

That could reduce some of the underlying inflation pressure facing the Bank of England, although businesses still need to balance wage costs against recruitment and retention.

For small businesses, the important comparison isn't simply inflation against wages. It's whether the combination of salaries and other operating costs is rising faster than the prices the business can charge.

What does it mean for interest rates?

The Bank of England has held Bank Rate at 3.75% since December.

The latest inflation figures could make the Bank more cautious about cutting rates further, although they don't point to an automatic increase.

The detail underneath the headline number is relatively mixed. Services inflation, which the Bank watches closely, eased from 3.6% to 3.4%, while core inflation remained at 2.6%.

That suggests some domestic price pressures are continuing to moderate even as the headline rate moves higher.

For small businesses, interest rates matter particularly if they have an overdraft, loan, commercial mortgage or other variable-rate borrowing.

A business with £100,000 of borrowing would pay an additional £250 a year if its interest rate increased by 0.25 percentage points, assuming the increase was passed through in full.

What should small businesses be watching?

The next few months will be important for businesses trying to work out whether the rise in inflation is temporary or part of a more persistent increase in costs.

Energy prices will remain one factor, but so will wages, borrowing costs and supplier prices.

Rather than using the 2.9% figure as a reason to increase prices across the board, small businesses should look at their own numbers.

Which costs have actually risen? Which have fallen? And are prices keeping pace with the cost of delivering the product or service?

That is what will ultimately determine whether higher inflation becomes a problem for the business's margins.

For now, the message from the latest figures is mixed. Headline inflation has moved further away from the Bank of England's target, but services inflation and private-sector wage growth have both eased.