Inflation driven to highest level since June 2014

Inflation reached a two-and-a-half-year high in January as rising fuel prices bumped up the cost of living.

Rising petrol and diesel prices have pushed up inflation. Picture: Lisa Ferguson

The Office for National Statistics (ONS) said the consumer price index (CPI) hit 1.8 per cent last month, up from 1.6 per cent in December, marking its highest level since June 2014.

However, the move came in shy of the Bank of England’s 2 per cent target and fell short of economists’ expectations of 1.9 per cent.

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Rising inflation and slowing wages to hit households

Separate figures for the producer prices index (PPI) showed that input prices – the amount paid for materials and fuel by UK manufacturers – saw its highest rate of growth since September 2008, jumping 20.5 per cent in January.

Sterling’s slump against the US dollar and the euro since the EU referendum result, coupled with rising oil prices, also caused import prices to leap 20.2 per cent over the period, the ONS said.

Ballooning import prices triggered by the Brexit-hit pound are expected to push up everyday prices as companies pass on their soaring costs to consumers.

ONS head of inflation Mike Prestwood said: “The latest rise in CPI was mainly due to rising petrol and diesel prices, along with a significant slowdown in the fall in food prices.

“The costs of raw materials and goods leaving factories both rose significantly, mainly thanks to higher oil prices and the weakened pound.”

The main driver behind the jump in CPI came from transport prices, which dropped by less than they did a year ago, falling by 0.6 per cent between December and January, compared with 2.5 per cent a year before.

Fuel prices climbed 3.4 per cent over the period after dropping by 2.6 per cent a year earlier, as the resurgent cost of Brent crude fed its way through to prices at the pumps.

The price of petrol rose to 118.6p per litre in January, up from 114.6p the month before, while diesel reached 121.9p per litre last month, up from 118p in December.

Overall food prices were flat between December and January after falling 0.6 per cent a year ago, as the sharp drop in grocery costs – triggered by the supermarket price war – ground to a halt.

The ONS said a rise in the cost of imported foods caused by the Brexit-hit pound may have been a factor in the significant slowdown in the fall of food prices.

It added: “Following a sustained period of deflation of food prices since mid-2014, during which the 12-month rate was often lower than negative 3 per cent, the rate has increased for four consecutive months, reaching negative 0.4 per cent in January. This is the highest it’s been since June 2014.”