Food and oil push up inflation

Inflation soared above four per cent today on the back of record-breaking rises in the cost of fuel and household food bills, official figures showed.

The Consumer Price Index, the Government's official rate of inflation which is based on average household spending apart from mortgages, increased to 2.2 per cent in January.

But the headline Retail Price Index, which also includes payments of home loans, rose to 4.1 per cent.

The figures from the Office for National Statistics showed the rising cost of living straying further away from the Government's two per cent target - and revealed that fuel inflation hit its highest rate since records began. Petrol is now costing 19.3 per cent more than the same time last year.

The price of food and non-alcoholic beverages rose by 6.1 per cent last month - the highest rate for nearly seven years - but clothing and footwear costs fell faster in this year's January sales than last year.

Nick Graham, chief executive of Shropshire Chamber of Commerce, said today's rise highlighted a difficult balancing act for local companies, which were having to either absorb higher costs, or pass the rise onto their customers.

He said it also heaped more pressure on employers to offer improved pay settlements to their staff.

"The chamber's patrons are meeting Professor Charles Bean, the Bank of England's chief economist on Friday and it is an issue we will certainly be looking to raise," he added.

There has been a flurry of energy bill hikes from companies such as Npower, British Gas, EDF and E.ON.

Bank of England governor Mervyn King warned inflation was likely to continue creeping up as manufacturers sought to pass on rises.