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Inflation at 29-month high of 1.6% as food and air fares rise

The headline rate of inflation has hit its highest level since the summer of 2014 as weaker sterling starts to affect the cost of many everyday prices.

Figures from the Office for National Statistics (ONS) showed the Consumer Price Index (CPI) hit an annual rate of 1.6% in December - up from 1.2% the previous month.

It meant the measure was at its highest level since July 2014 and came in above the expectations of economists who had pencilled in a rise to 1.4%.

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 data on factory gate prices - an indicator of future inflation - showed output prices rising by 2.7% which is the fastest pace for almost five years amid warnings from the Bank that CPI could hit 2.7% later this year.

Input costs were almost 16% up year-on-year reflecting the fall - of up to 20% in the value of the pound versus the dollar - in sterling's value since the EU vote which makes imported goods more expensive.

Rising costs threaten to damage the consumer spending that has propped up economic growth since the UK's vote to leave the EU.

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Rising vegetable costs were among the biggest contributors to the increase in food price inflation on the previous month, the ONS said.

It calculated that while overall food costs were still down 1% on an annual basis, the weakness of sterling had helped drive some categories higher as suppliers had demanded more for their goods from retailers.

Stores are under pressure to pass on those higher costs though the supermarket sector is expected to limit price rises for customers given the fierce price war with rivals.

Tesco (Swiss: TSCO.SW - news) , Next (Frankfurt: 779551 - news) and John Lewis are among those to have warned on price pressure since Christmas alone while recent grocery data showed the extent to which chains are passing on higher costs.

Air fares made their usual contribution to inflation in December.

The ONS recorded a 49% hike in air fare costs month-on-month - contributing to a 2.9% jump in overall transport prices.

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