Official figures today revealed that the rate of inflation managed to jump by the biggest margin that has been recorded, between the months of November and December.
As per figures shared by the Consumer Prices Index (CPI) measure of inflation, which is the preferred measure of England's central bank, inflation surged to 2.9% in December, up from November's reading of 1.9%.
The development has now fueled speculations that the rate of inflation will rise beyond 3% in January, forcing Bank of England Governor Mervyn King to send out a letter to Chancellor Darling, explaining why the inflation has risen beyond the 1% target. Since 2007, this would be the sixth such letter.
Experts are of the opinion that much of the rise in inflation is mainly because of "base factors are filtering through" from December 2009, which was when the VAT was pulled down to 15%, in addition to a sharp decline in fuel prices. The VAT has now come back to 17.5%.
Many analysts, in addition to the central bank, feel that the inflation has hit its peak and is now going to fall back.
"Today’s increase partly mirrors the sharp falls seen at the end of 2008 following the oil price spike and the impact of reduced VAT in December 2008. We do not anticipate any tightening of monetary policy to dampen this short-term phenomenon as beyond January, inflation should continue on a downward path well into 2010", said Hetal Mehta, senior economic adviser to the Ernst & Young ITEM Club.