Firms also passed on more of their cost increases. Prices charged at the factory gate rose by far more than expected, taking their year-on- year rate of growth to the highest since last February.
The shock hit long-term gilts and the pound, which approached its 1994 low of 2.3710 against the mark. Shares fell, with the FT-SE 100 index closing 28.8 points lower at 3,081.1.
Prices paid by producers for inputs jumped 1.3 per cent last month, to a level 11.5 per cent higher than a year earlier, after adjustment for seasonal variations. The biggest cost increases came in industries dependent on commodities whose prices have risen sharply.
Prices paid for materials by the rubber and plastics industry were 20.4 per cent higher last month than a year earlier, while input prices rose 17.3 per cent in basic metals industries. Others suffering double-digit rises included food manufacturing, textiles, paper and publishing, and chemicals.
Although commodity prices have fallen recently, the drop has been small relative to their increase over the past year. Leo Doyle, an economist at Kleinwort Benson, said the pressure from commodity prices would continue to affect manufacturers for another few months.
Prices charged at the factory gate rose 0.9 per cent last month - or 0.5 per cent after seasonal adjustment. Their year-on-year rate of growth climbed to 3.4 per cent after being as low as 1.9 per cent last summer.
The biggest price rises were passed on by the same industries paying the biggest increases in materials costs - namely rubber, metals, textiles and chemicals.
Higher excise duties introduced in the Budget should have added 0.4 per cent to prices charged by producers, but the higher rates were not fully passed on. "Core" factory-gate prices, excluding food, drink and tobacco and thus the excise duties, also rose 0.5 per cent.
The clear evidence of a bulge of higher inflation working its way along the chain has focused attention on January's retail prices and retail sales figures, to be published on Wednesday. Both were stronger than expected in December.
The Confederation of British Industry's survey of retail and wholesale trade, published today, showed high-street trade was weaker than retailers expected, perhaps suggesting that price rises can still not be passed on to consumers. Alastair Eperon of the CBI said: "The survey suggests that on an underlying basis high-street trade is still growing only modestly."
Some economists said that even higher base rates were indicated. Kevin Darlington at Hoare Govett said: "We will require much higher interest rates to keep retail price inflation around 2.5 per cent. The Bank of England will have to have a lot of gumption to meet that target."