INFLATION has reached its highest level since October 2008, the Office for National Statistics (ONS) revealed yesterday.
The consumer price index – which the Bank of England is tasked with keeping close to two per cent – jumped from four per cent in January to 4.4 per cent in February.
“The Bank is going to have to revise up its inflation projection at the May Inflation Report,” responded economist Alan Clarke of BNP Paribas. “Inflation looks increasingly likely to hit five per cent by autumn.”
Core CPI inflation – which excludes energy, food, alcohol and tobacco – was also up 0.4 per cent on January, reaching 3.4 per cent in February (a record high).
The retail price index measure of inflation was also up 0.4 per cent compared to January, rising to 5.5 per cent.
And the tax price index hit six per cent – its highest level since April 1991. The hike in National Insurance, expected in today’s budget, is likely to push the TPI even higher.
The news piles even greater pressure on the Bank to normalise interest rates from their historic low of 0.5 per cent. Sterling shot up from below $1.63 to touch $1.64 in yesterday’s trading, following news of the inflation figures.
Short sterling interest rate futures now price in roughly a 50 per cent chance of a May rate rise.