The rate of inflation has jumped to its highest level for three and a half years with the rising cost of fuel and the end of supermarket price wars blamed for the dramatic spike.
The unexpected rapid rise in the Consumer Prices Index last month from 1.8 per cent to 2.3 per cent — the highest since September 2013 — means that wages are no longer keeping pace with the cost of living.
It also breached the Bank of England’s official two per cent target for the CPI, sending the pound soaring by more than a cent on fears that interest rates will start to rise sooner than expected.
The Bank of England’s Monetary Policy Committee, led by Governor Mark Carney, cut its interest rate to a record low 0.25 per cent last August in the wake of the EU referendum bombshell.
Food prices rose year on year by 0.3 per cent following 31 consecutive months of falls as the impact of the post-Brexit slump in the value of the pound starts to feed through to the cost of imported goods in the shops.
Another factor was the “great iceberg lettuce and broccoli crisis” with poor weather in southern Spain sending the cost of some vegetables soaring.
The price of an iceberg lettuce jumped 67.2 per cent between January and February.
There were also predictions today that the rate of inflation will continue to rise sharply over the coming months, cutting into the living standards of millions of families.
Major energy and broadband suppliers have already announced price increases for next month and tax rises announced in the Budget means that the cost of alcohol, cigarettes, prescription charges and the car tax disc will also all go up.
Joanna Elson, chief executive of the Money Advice Trust, the charity that runs National Debtline, said: “The new squeeze on household incomes has arrived in earnest, and is likely to get worse as we move further into 2017.
“Many household budgets are being chipped away by the rising cost of living — and many people who are only just about managing risk falling into problem debt as a result.”
Stephen Clarke, economic analyst at the Resolution Foundation think tank, said: “After 38 months inflation is back above the Bank’s target, bringing to an end the era of ultra-low inflation that has boosted living standards in recent years.
“Today’s rapid increase is part of a wider trend with price rises set to be the big living standards story of this year. To date, pay settlements have failed to respond to rapidly rising prices, meaning there’s a good chance pay packets are already shrinking in real terms.”
Frances O’Grady, general secretary of the TUC, said: “If the Government doesn’t wake up, we risk sleepwalking into another living standards crisis.”
There was also bad news for first-time home buyers with average prices in London jumping three per cent in a month to an average of £490,718, according to the Land Registry.
The biggest rises were in Waltham Forest, where they are up 15.7 per cent in a year, Newham (14 per cent) and Barking & Dagenham (11.7 per cent.)