Talk of higher interest rates sooner rather than later revived yesterday after National Statistics reported a surprise jump in inflation last month.
Chancellor Gordon Brown's chosen measure of inflation, the consumer prices index rose by 1.9 per cent in the year to March, up from 1.6 per cent year-on-year in February.
That is higher than this index has been at any time since May, 1998, though still just within the Bank of England's two per cent target.
The headline retail prices index, still used as a benchmark by pay bargainers and as the basis for the state pension and many other welfare benefits, stayed unchanged at
3.2 per cent.
This arose mainly because a round of mortgage rate increases in March last year was not repeated this time. That damped down the RPI, but not the CPI, which leaves out all costs of buying and owning a home.
The Bank's previous target index, the RPI leaving out mortgage interest, rose in line with the CPI to 2.4 per cent, similarly just short of the
2.5 per cent target rate used until the end of 2003.
NS said the sharp monthly increase was due partly to this year's early Easter. That pushed high holiday air fares back into March, when last year they fell in April.
At the same time a shortage of vegetables and some other fresh produce, combined with higher milk prices pushed up the cost of seasonal food.
Furniture prices were another factor. Many had been held down in February after the formal end of the January sales, but were then raised sharply in March, breaking
the seasonal pattern. Clothing and footwear were also dearer.
Together, the increase completely swamped the effect of a fall in wine prices, which rose in March last year and relatively modest seasonal increases in pub prices for beer.
The implication for interest rates depends largely on the extent to which members of the Bank's interest-setting Monetary Policy Committee view this combination of unrelated seasonal factors as part of a longer-term trend.
The CPI has now risen from
1.1 per cent in the six months since last September. For the first time for more than three year, prices for goods registered an increase, although still only 0.1 per cent.
The cost of services has now risen by four per cent over the latest 12 months, more than at any time since March, 2003.
"The CPI data was much stronger than expected with strength in both goods and services," said Mark Miller, an economist at HBOS Treasury Services.
"This will keep MPC members wary about inflation risks going forward."
In the City, financial markets responded by lowering prices - raising the yields - of gilts and short sterling interest rate futures in the expectation that the Bank could make a pre-emptive move to head off future inflationary pressures.
Similarly, the pound gained more than a cent against the dollar to close at $1.916, although it dipped fractionally against the euro.
The Bank has held its official rate unchanged at 4.75 per cent since August. But in its meeting earlier this month two MPC members voted for an increase.
