Rising costs of food, fuel and home energy spur inflation on to 2.2%

ROCKETING petrol prices, gas bills and food costs pushed inflation above the government's target for the fourth month in a row during January.

The consumer prices index (CPI), the official inflation measure, rose to 2.2 per cent – up from 2.1 per cent in December and the highest level since last June – while the retail price index, which includes mortgage interest payments, rose to 4.1 per cent from 4 per cent.

Further rises are expected soon as the recent round of double-digit electricity and gas bill increases takes effect, but experts said price growth was not as swift as some had feared, boosting hopes of further interest rate cuts later this year.

The biggest culprit was fuel, which rose at its highest annual rate since records began more than 11 years ago, according to the Office of National Statistics (ONS). Average petrol prices rose by 1.3p in January to stand at 103.9p per litre.

Food prices leapt 6.1 per cent – their highest rate since June 2001 – with the cost of fruit suffering the sharpest rises. However, cut-price deals on clothes and shoes at high street stores in the dismal run-up to Christmas prevented inflation from rising higher.

The Bank of England cut UK interest rates last week to 5.25 per cent from 5.5 per cent in an attempt to prevent a major slowdown in the economy. But the Bank signalled it was unlikely to cut rates as sharply as the US Federal Reserve – which has slashed borrowing costs to 3 per cent – because of fears that inflation would continue to rise.

However, Howard Archer, of analysts Global Insight, said: "We do not expect the Bank to cut interest rates again until May, unless it becomes clear that growth is slowing substantially. We expect interest rates to fall to 4.5 per cent by the end of the year as we believe the economy will see extended below-trend growth and this will eventually contain inflation."

The ONS said it was changing its method of calculation to reflect more quickly the impact of increases, including gas and electricity rises from the day they are introduced instead of phasing in increases over a four-month period.

Five major energy providers have so far raised energy prices, with Npower the first to introduce rises at the beginning of last month, followed by EDF, British Gas, ScottishPower and EON.

Economists are forecasting the rises could push the CPI above 2.5 per cent, straying further away from target and closer towards "letter-writing territory" for the Bank of England.

Mervyn King, the Bank's governor, has to write an open letter to the Chancellor if the CPI is more than 1 per cent above or below the 2 per cent target. He has warned that rising inflationary pressures this year could see him write one, or possibly more, letters.

RICE RISE MAKES CURRY COSTLY
THE cost of a curry is on the rise due to massive increases in rice prices.

Alex Waugh, director of the Rice Association, said prices were up 60 per cent year on year and the price of basmati rice, one of the most popular varieties in the UK, had almost doubled.

Producers such as India, China, Vietnam and Egypt had restricted their exports, and there were now "rapidly declining stocks" in the world. Thailand and the United States were now the main suppliers to the world market, he said. This would feed into the price British consumers pay for rice at shops and in restaurants.

Mr Waugh said: "If you are a restaurant owner and you are buying a lot of rice, you either reduce your margins or put your prices up."

Britain imports around 200,000 tonnes of rice every year.