INFLATION GOES HIGHER THAN GOVERNMENT’S TARGET LEVEL

Inflation has risen to its highest level for more than three and a half years confirming fears of a negative effect on households as wage growth stalls.

Increased food and fuel prices lifted the Consumer Price Index measure of inflation to 2.3% last month, up from 1.8% in January.

It means the cost of living is catching up with the rise in regular pay growth, which also stood at 2.3% according to the latest official data.

The increase means increased difficulty for savers as the value of their savings is further eroded due to record low interest rates.

Higher inflation is largely a result of the collapse in the value of the pound since the Brexit vote, which has forced up the cost of imports.

Figures from the Office for National Statistics (ONS) report another increase in food prices, up 0.3% compared with last year. Prices were held artificially low by a massive price battle with the major supermarkets. Higher fuel prices also added to higher inflation.

Inflation is at the highest rate since September 2013. Economists had expected a rise to only 2.1%.

Sterling rose by a cent to $1.25 on the release of these figures, which is leading to speculation in the City that the Bank of England will need to review its position on maintaining record-low interest rates.

Another measure of inflation known as the CPIH, which also includes the costs of housing which is now a preferred ONS headline measure, also rose to 2.3%.

The Bank of England has forecasted that CPI inflation – its preferred measure – will climb to approximately 2.8% this year.

Many leading economists expect it will be even higher.

James Smith, an economist at ING Bank, said: “With rising food and fuel prices set to push inflation above 3% by the end of the year, 2017 looks set to be an increasingly tough year for households”.

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