The Office for National Statistics said the annual rate of CPI rose to 3.7 per cent in December from 3.3 per cent in November – much higher than analysts' forecasts for a steady reading after the biggest ever monthly rise in prices.
The figures are likely to put further pressure on the Bank to raise interest rates in the first half of this year. Inflation is expected to rise even further early in 2011 due to the rise VAT, and has been well above its two per cent target for over a year.
The ONS said the biggest drivers of inflation last month were air transport, fuel, utility and food bills. Fuel cost s rose at their fastest annual rate since July, and food prices showed their biggest annual rise since May 2009.
Oil prices are fast approaching $100 a barrel, far higher than the Bank assumed when it made its November Inflation Report forecasts.
The Bank had forecast inflation would average around 3.2 per cent in the fourth quarter of 2010, although more recently policymakers said it could even hit four per cent early in 2011, due to January's rise in value added tax.
Last week the Bank left interest rates on hold at their record low of 0.5 per cent. Policymakers had an early estimate of Tuesday's data when they made their decision.
Monetary Policy Committee member Paul Fisher said in an interview published on Tuesday that inflation was "very uncomfortable," but that the Bank had to look through the short-term factors pushing up prices, however unpopular that may be.
The retail price inflation gauge, which includes more housing costs and is the benchmark for many wage deals picked up to 4.8 per cent from 4.7 per cent, in line with expectations, and the highest since July 2010.