CPI jumps to 17-month high

The Consumer Prices Index (CPI) hit a 17-month high of 3.7% in April, forcing Bank of England Governor Mervyn King to write to new Chancellor George Osborne to explain why.

Year-on-year, CPI hit its highest rate since November 2008, rising 0.3% from last April's reading of 3.4%.

The increase beat out expectations of a more conservative rise of 0.1%, and was well above the target of 2%.

Governor of the Bank of England King must now explain to Britain's new Chancellor why the cost of living is more than a percentage point above the official target.

Month-on-month CPI was 0.6%, matching the reading a month prior, but exceeding forecasts it would fall to 0.4%.

The Retail Price Index (RPI), a wider measure of inflation which includes mortgage payments, has leapt to its highest level in more than 18 years.

RPI, which is used for wage negotiations, hit 5.3% in April on a year-on-year basis, up from 4.4% in March and the most since July 1991.

In addition, the core CPI, which excludes volatile goods such as petrol, recorded a jump of 3.1% over the year in April, 0.3% higher than the consensus figure of 2.8%.

Schroders European economist Azad Zangana says: "This [increase] can only be described as terrible and will come as a blow for the Bank of England, which has continued to talk down inflation fears pointing to significant slack in the economy.

"[It] will sound alarm bells for the hawks on the Monetary Policy Committee, who have recently voiced their concerns about the risks of higher inflation feeding through to higher inflation expectations.

"We recently raised our inflation forecast for 2011 to take into account a possible rise in VAT to 19%. If inflation does not fall as fast as the Bank of England hopes, and soon, then we are more likely to see a rise in interest rates this year. We continue to forecast a 0.25% rise in UK policy rates in November 2010."

Chief economist at World First Jeremy Cook says the continued "stickiness" of CPI throughout the recession will be a concern for those betting on a swift UK recovery.

"This means the MPC is likely to have to stay dovish moving forward and will also reduce the speed of any sterling recovery in the latter part of the year. "

CPI released by the Office for National Statistics (ONS) is a measure of price movements by comparing the retail prices of a representative shopping basket of goods and services.