Inflation reaches 17-month high

Published on Tuesday 18 May 2010 15:07

RISING food prices and Budget duty increases saw inflation by a 17-month high for the month of April.

The Consumer Prices Index (CPI) hit 3.7% last month, the highest since November 2008 and ahead of the 3.5% expected by the City, the Office for National Statistics (ONS) said.

The rise triggers an open letter from Bank of England governor Mervyn King to new Chancellor George Osborne to explain why inflation remains above the Bank's 2% target.

The headline Retail Prices Index (RPI) also jumped to 5.3% – the highest since July 1991 – as mortgage interest payments edged higher last month, in contrast to a year earlier when lenders passed on rate cuts.

Although the Bank's Monetary Policy Committee (MPC) expects inflation to ease back, the higher than expected figures could increase nerves among policymakers and shift them towards rate hikes to prevent the cost of living rising out of control.

The inflation figures showed annual food inflation reaching 2.6% last month – the highest since last July – with broad-based price rises across meat, fruit and vegetables compared with falling costs a year ago.

The ONS added that disruption from Iceland's volcanic ash cloud last month had little upward effect on food prices.

Alcohol and cigarette duty hikes in March's Budget added to inflationary pressure, while clothing and footwear prices also rose by more than a year ago.

Food, drink and clothing added a combined 0.3 percentage points to the CPI, the ONS said, offsetting falling furniture costs.

The official figures also showed average petrol prices hitting 120.2p a litre last month – the highest since records began in 1996 – but the impact on inflation was limited, despite misery for motorists due to similar rises a year earlier.

The same factors influencing CPI were also behind the RPI rise, although the figures showed a 0.6% rise in mortgage interest payments compared to a 7.7% fall in April last year in the wake of the Bank of England cutting interest rates to a record low 0.5%.