Inflation rises to 3.5 per cent

In the year to January, the consumer prices index (CPI) rose by 3.5 per cent, up from 2.9 per cent in December, according to the Office for National Statistics (ONS).

In the year to January, the all items retail prices index (RPI) rose by 3.7 per cent, up from 2.4 per cent in December.

Over the same period, the all items RPI excluding mortgage interest payments index (RPIX) rose by 4.6 per cent, up from 3.8 per cent in December.

The CPI fell by 0.2 per cent between December and January. Although negative, this is the strongest ever CPI growth between these two months (prices typically fall at a faster rate between December and January). This record monthly movement is mainly due to the increase in January 2010 in the standard rate of Value Added Tax (VAT) to 17.5 per cent from 15 per cent and, to a lesser extent, the continued increase in the price of crude oil. These two factors also affected the RPI monthly movement between December and January.

The CPI annual rate increased again in January. The increase of 0.6 per cent from 2.9 per cent in December to 3.5 per cent in January is the second largest ever increase in the annual rate between two months. This follows a record increase of 1.0 per cent in the annual rate between November and December. Official records for the CPI began in 1996.

The increase in the standard rate of VAT in January 2010 had a significant impact on the change in the CPI annual rate as this led to larger than normal price rises (or smaller than usual falls) this year for a December to January period. However, the VAT rate between December 2008 and January 2009 was stable at 15 per cent and therefore the VAT rate by itself had no influence on the price movement between these two months last year.

By far the largest upward contribution to the change in the CPI annual rate came from transport. Within this division the largest upward effect came from fuels and lubricants where prices rose this year by 2.2 per cent, which is a record rate of growth for a December to January period, compared with a fall of 3.4 per cent a year ago. Increases in the price of crude oil and in the standard rate of VAT both contributed to the significant price rise this year.