Official figures are expected to show inflation rising further beyond its target as economists warn cash-strapped consumers of more price hikes in 2011.
Economists predict the latest data from the Office for National Statistics (ONS) will reveal that consumer prices index (CPI) inflation rose to 3.4% in December from 3.3% the previous month.
The Bank of England, which is tasked with keeping CPI below its 2% target, has already warned CPI may reach 3.5% in early 2011 as the price of commodities continues to build and following the rise in VAT from 17.5% to 20%.
Inflation has been above target since November 2009 driven by the devaluation of the pound, last year’s rise in VAT and the growing cost of commodities such as oil, coffee, sugar, cotton and wheat.
Further rises are expected to have been caused in December by increases in the price of petrol and utility bills.
Philip Shaw, an economist at Investec, expects CPI to have risen to 3.5% in December. He said: “It seems likely that inflation will exceed the 4% level later in the year and there seems a growing risk that the targeted measure will remain in excess of 2% through 2012.”
Economists at Barclays Capital forecast a 3.6% rise in inflation last month. A note from the bank said: “We expect CPI inflation to rise to around twice the target rate during the first quarter. We expect inflation to remain well above target throughout 2011 before dropping slightly below target at the start of 2012.”
JP Morgan experts predict CPI will peak at 4.2% in February.
Figures released by the British Retail Consortium and Nielsen this month revealed that shop price inflation rose to 2.1% in December from 2% in November following increases in the cost of non-food. Shop price inflation remains below CPI as retailers discount to keep prices down, but the report showed commodity prices are being kept high by the global economic recovery and growing demand from emerging markets such as China, Brazil, India and Russia.
Prime Minister David Cameron recently said inflation was a “concern” because it was “well outside what the Bank is supposed to deliver”.