Fears of rate rises after jump in inflation

Inflation rose sharply across the major industrialised countries in May, according to a report that will fuel fears that central banks are about to embark on another round of interest rate rises.

The Organisation for Economic Co-operation and Development, which covers 30 countries including the UK, said prices increased at an annual rate of 3.1 per cent in May. This was up from 2.7 per cent in April and was the highest since September 2001, apartfrom a blip towards the end of last year.

Energy prices jumped to an annual rate of 16.5 per cent from 13.1 per cent in April, while food increased to 1.2 per cent from 1 per cent.

Even underlying inflation rose to a one-year high of 2 per cent from 1.9 per cent in April. It confirmed that headline inflation in the UK had hit 3 per cent in May.

The figures came a week after the Bank of International Settlements warned that central banks would have to raise rates after leaving them too low for too long. On Monday, snapshot surveys of manufacturing sectors in the UK, US and the eurozone confirmed the world was enjoying a boom.

The IMF increased its forecast in March for world economic growth to be 4.9 per cent this year, the best figure since 1976 apart from an exceptional 2004.