Inflation jump catches City by surprise

The Consumer Price Index (CPI), the Government’s preferred measure of inflation, jumped to 2.9 per cent in December.

It was only 1.9 per cent in November, and the increase represents the biggest monthly increase since records began. The City was shocked, as it had expected a leap – but only to 2.6 per cent. It is the highest level since March.

The Retail Price Index (RPI) was also up – to 2.4 per cent, its highest level for over a year. It was up from 0.3 per cent in November – the biggest leap in RPI since 1979.

The jump in CPI came about because of a number of factors that had kept prices down a year before, including a fall in oil prices in December 2008, the cut in VAT to 15 per cent and retail discounting, according to the Office for National Statistics.

Core CPI, excluding food, energy, tobacco and alcohol, was up by 2.8 per cent on the year, and this is the fastest rate of growth since records began in January 1997. RPI includes council tax, mortgage interest payments, buildings insurance and house depreciation – none of which are included in CPI.