Sky high petrol prices send UK inflation soaring

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Sky high petrol prices sent annual inflation soaring to 3.4% last month after a faster than expected rise in the cost in living, official figures revealed today.

Consumer Prices Index (CPI) inflation leapt up from 3% in February after petrol prices rose by 2.7% in the month, according to the Office for National Statistics (ONS).

The CPI rise - bigger than economists had forecast - presents a headache for the Government at the start of a crucial week for economic data in the General Election battle.

The ONS said energy prices also contributed to the rise back up in inflation, with the majority of the recent gas reductions not having yet taken place, compared with falls last March.

But the significant upward pressure from petrol threatens to draw attention to Labour's 1p hike on duty imposed on April 1.

Motorists have been facing record costs at the petrol pump, with oil prices hitting recent 18-month highs.

The AA said the average cost of a litre of petrol is now 120.9p, against 95.2p a year earlier.

Retail Prices Index (RPI) inflation - which includes the cost of mortgages and housing - also rocketed last month, reaching 4.4% in March, which is the highest since September 2008.

CPI inflation had eased back sharply in February to 3% from 3.5% in January and economists had only expected the benchmark measure to rise to around 3.1% last month.

If CPI remains more than 1% above the Government's 2% target in April, Bank of England Governor Mervyn King will be forced to write another letter of explanation to the Chancellor.

He last wrote to Alistair Darling after CPI's spike in January, but the Bank has forecast that inflation should ease back to target by the third quarter.

Today's ONS figures show a record uplift from transport costs, including petrol prices and air fares, with the annual rate of inflation 11.3% - the highest since at least January 1997.

Food costs also pushed CPI higher, with vegetables affected from the adverse weather at the start of the year.

The data is the first in a flurry of economic indicators in what could be a decisive week in the General Election campaign, culminating in the eagerly awaited estimation of first quarter gross domestic product on Friday.

Before then, there are the latest statistics on unemployment, minutes of the last interest rate meeting, retail sales and borrowing figures for the full financial year.

Shadow Treasury chief secretary Philip Hammond said: "This is worrying news for families who are already feeling the pinch.

"Gordon Brown's decision to freeze tax allowances while inflation is soaring means that people will pay more of their income in tax - the last thing they need when they are already struggling to balance their budgets.

"A hung Parliament could lead to an even weaker pound and even higher inflation, with the risk of higher interest rates to tackle it. Only the Conservatives can restore confidence in our economy and guarantee the recovery."

Jonathan Loynes, of Capital Economics, predicted that inflation will remain above 3% in April - prompting another letter of explanation from the Bank of England to the Chancellor.

He still expects inflation to fall back sharply later this year and in 2011 as VAT and energy effects fade and the vast amount of slack in the economy drags core inflation lower.

Mr Loynes added: "As such, we continue to expect the Bank's monetary policy committee to "look through" the current rise in inflation and maintain its extremely loose policy stance for a considerable period yet."