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Lower pound hits British food prices

Press Association logoPress Association 17/01/2017

Inflation in Britain soared to its highest level in two-and-a-half years in December as air fares rose and the plunge in the pound started to affect food prices.

The Office for National Statistics (ONS) said the Consumer Price Index (CPI) measure of inflation hit 1.6 per cent, up from 1.2 per cent in November.

Economists were expecting a rise of 1.4 per cent.

The move pushed CPI to its highest level since July 2014, when it also reached 1.6 per cent.

Separate figures for the Producer Price Index (PPI) showed factory gate prices rose 2.7 per cent year-on-year in December as manufacturers started to pass through higher input costs following the collapse of the pound.

ONS head of inflation Mike Prestwood said: "This is the highest CPI has been for over two years, though the annual rate remains below the Bank of England's target and low by historical standards.

"Rising air fares and food prices, along with petrol prices falling less than last December, all helped to push up the rate of inflation.

"Rising raw material costs also continued to push up the prices of goods leaving factories."

The jump in food prices was one of the biggest contributors to rising CPI, with a hike in the cost of vegetables helping push overall food up by 0.8 per cent between November and December, having been flat a year earlier.

The ONS said the 12-month rate for food prices was still negative, down one per cent on the year, but that was still the highest since July 2014.

Supermarkets have been locked in a bitter price war, with discount grocers putting pressure on competitors.

However, there are signs that the Brexit-hit pound is starting to push up prices at the till, particularly for imported goods.

Sterling weakness was a factor in rising food prices, but was not the sole contributor to the jump, the ONS said.

It follows a significant drop in sterling, with renewed Brexit jitters having sent the pound as low as $US1.21 in December, a 19 per cent drop from its pre-referendum high on June 23.

A bumper 49 per cent rise in air fares between November and December contributed to a 2.9 per cent jump in overall transport prices.

That is compared with a rise in air fares of 46 per cent a year earlier.

The cost of living was also pushed up by fuel prices which fell by a smaller amount than they did a year earlier, dropping 0.4 per cent between November and December, compared with 2.8 per cent over the same period in 2015.

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