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Inflation rises to highest level for 2.5 years


CPI annual inflation grew 0.5 per cent to 4.5 per cent between March and April, with the Office for National Statistics reporting that the rise was fuelled by air transport, alcohol, tobacco and gas.

Clothing & footwear was one of the main downward pressures on inflation during the month, but the timing of Easter was said to have had a significant impact on the overall rate hike, which is now at its highest level since September 2008.

Air and sea transport fares, which rose to coincide with the traditional Easter getaway, had the greatest impact on inflation, while the increase in excise duties on alcohol and tobacco introduced in March contributed to prices rising by 5.3 per cent month-on-month.

Last week’s Inflation Report from the Bank of England predicted that CPI is likely to rise to five per cent by the end of 2011 and stay above the Bank’s target rate of two per cent for the rest of the year and throughout 2012.

This prompted some financial commentators to change their estimations for when the Bank’s Monetary Policy Committee will increase interest rates from their record low of 0.5 per cent, with experts now increasingly predicting that the cost of borrowing will rise before the end of 2011.

Rising inflation and the potential base rate hike are likely to have a detrimental effect on consumer confidence at a time when high unemployment, slow wage growth and a sluggish housing market are already having a negative impact on sentiment.

Kevin Mountford, Head of Banking at price comparison website, said: “Consumers are not only battling rising day-to-day costs and a reduced level of disposable income, many are also having to deal with pay freezes, which means in real terms, their incomes are being reduced.

“Many families will feel like their finances are approaching breaking point, however, there are still small steps they can take to help them save some vital pennies.”

Published on Tuesday 17 May by Editorial Assistant

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