Inflation higher than expected


A rise in petrol prices was one of the factors behind a bigger-than-expected increase in inflation

The rising cost of food, petrol and utility bills pushed the rate of inflation up to a higher-than-expected 3.7% in December, official figures have revealed.

The Consumer Prices Index (CPI) annual rate of inflation surged to its highest level since April, up from 3.3% in November, the Office for National Statistics (ONS) said. Economists were expecting the rate to rise to 3.4%.

Prices increased by 1% between November and December in their biggest ever month-on-month rise since records began in 1996, the ONS added.

The rises were driven by a 1.6% increase in the price of food – the highest rise for a November to December period – and 3.6% rise in transport costs, the highest-ever monthly increase on record.

The higher-than-expected rise in CPI will add to pressure on the Bank of England, which is tasked with keeping inflation at its 2% target, to raise interest rates.

The Bank has battled with stubbornly high inflation all year, which it believes is being caused by temporary factors, such as spikes in commodity prices and January’s VAT rise from 17.5% to 20%. CPI has been above its 2% target every month since November 2009.

The Monetary Policy Committee (MPC) has resisted raising its base rate of interest from its all-time low of 0.5% despite growing pressure.

Jonathan Loynes, chief European economist at Capital Economics, said: “December’s worse-than-expected UK consumer prices figures will do nothing to comfort those concerned that the MPC is neglecting its inflation-targeting remit. After all, the committee will have had the headline figures – showing CPI inflation rising from 3.3% to 3.7% – at its meeting last week.”

The big freeze pushed up the price of vegetables in December as supplies were choked by disruption to the supply chain and crop damage. There were price hikes across most bread and cereals, aggravated by the wildfires that wrecked Russia’s harvest and caused the country to impose an export ban.

The price rises brought in by utility companies also started to feed through to consumers in December, with gas particularly badly affected, pushing up the cost of housing and household services by 1.4%. Petrol prices also continued to rise to £1.22 per litre, said the ONS.

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