The latest figures published by the Office for National Statistics (ONS) have prompted predictions that inflation could even rise higher this year reaching up to five per cent.
Yesterday the ONS
announced that inflation has hit 3.8 per cent due to soaring food and petrol prices, up from 3.3 per cent in May and the highest since June 1992. The rate is almost twice as high as the Bank of England's target rate of two per cent, and higher than expected even by the most pessimistic economists.
Jonathan Loynes of Capital Economics commented: "We've been getting used to unpleasant surprises on inflation over recent months. But June's further rise in the headline rate was nonetheless pretty nasty. The headline rate is set to rise further in response to rising gas and electricity bills, and could get close to 5 per cent in the autumn."
Food price inflation rose by nearly two per cent from May to 10.6 per cent in June mainly due to increased prices for meat and dairy. Fuel prices have also reached a record high, with the price of petrol at the pump up by 5.3p in just a month.
The retail price index, which includes mortgage
and housing costs and is commonly used for wage negotiations, rose from 4.3 to 4.6 per cent in the same time, and even the core inflation measure increased from 1.5 to 1.6 per cent, suggesting fuel and food inflation may have started to pass through to the wider economy.
Experts believe the figures will keep the Monetary Policy Committee (MPC) from cutting interest rates, as the economy is widely expected to slip into a recession.
Commenting on the figures, Chancellor Alistair Darling pleaded for wage restraint yesterday to help contain price growth: "We saw what happened in the past when inflation got out of control and people found that every penny they got in a wage increase was swallowed up by food and fuel prices going up."
He added: "Whether you are sitting in the boardroom or working on the shop floor, we cannot allow inflationary wage increases, because that would mean everyone, especially people on lower incomes, would suffer."
In an attempt to alleviate the pressure on household budgets, Mr Darling announced today that the two pence increase in fuel duty planned for October would be postponed.
"The global credit crunch and sharp rises in world oil prices have pushed up prices at the pump. Today's decision will help motorists and businesses get through what is a difficult time for everyone," Mr Darling said.
"Postponing the planned increase in fuel duty is also consistent with the Government's commitment to support the Bank of England in maintaining low inflation."
MPC member Andrew Sentence, however, offered a bleak picture of the near future at a pensioners conference in Windsor yesterday.
Price rises would be curbed and inflation brought under control only when household incomes had been squeezed, economic growth reduced and unemployment raised, he said, warning: "Britain must get used to living with a protracted period of economic hardship."
© Fair Investment