Rising food and energy prices have pushed UK consumer inflation to its fastest rate since the measure began in 1997, government figures have shown.

The Consumer Prices Index (CPI) measure of annual inflation was 3.3% in May, up from 3% the previous month, said the Office for National Statistics (ONS).

The rise means that the Bank of England governor must explain to the chancellor its policy for controlling price rises.

The wider Retail Prices Index rose to 4.3% from 4.2% in April.

The biggest contributor to consumer inflation was the rising price of food and non-alcoholic drinks, the ONS said.

This was mainly due to the increasing cost of meat products, particularly bacon, and vegetables.

Increasing household energy bills were also a significant factor, along with the rising cost of books, stationery and foreign holidays. However, this rise in the cost of leisure and recreation was offset by a fall in the price of DVDs, according to the ONS.

Further rises?

Some analysts have predicted that CPI could reach 4% this year.

If inflation rises more than one percentage point above the government’s 2% target, the Bank of England governor must write a letter to the government to explain what action it is taking to control consumer prices.

This would almost certainly be the first of several letters Howard Archer Economist Are you feeling the credit crunch? Viewpoint: Sir Alan Budd

The Bank governor Mervyn King has had to write such a letter to the chancellor only once before, when inflation hit 3.1% in April 2007.

Mr King is likely to blame significant rises in international commodity prices.

“This would almost certainly be the first of several letters, as consumer price inflation looks well set to reach 4% this summer before starting to fall back late in the year,” said Howard Archer, UK economist at Global Insight.

Economic slowdown

The higher than expected rise in consumer price inflation has transformed expectations for interest rates, according to the BBC’s Economics Editor, Hugh Pym.

Confident talk of two or more cuts in borrowing costs from the present level of 5% has been replaced by forecasts of unchanged or even higher rates in the months ahead, our editor says.

Mr King and his colleagues are unlikely to cut interest rates further until they are convinced that the inflationary threat has passed - despite pleas from those struggling in the housing market.

However, analysts warn that raising interest rates to curb inflation could dampen an economy already dented by slowing growth and the weakening housing market.

“The key factor [deciding the direction of interest rates] will be whether increased inflationary expectations feed through into greater wage demands and second round effects – at the moment average earnings growth is stable, but the MPC will be watching it closely through 2008,” said economist Charles Davis from the Centre for Economics and Business Research.

Passed on

Consumers and companies are already feeling the effects of higher energy and food bills.

Oil prices have nearly doubled over the past year and on Monday the price hit a fresh high of almost $140 in New York.

That in turn has pushed up the cost of petrol and diesel, prompting many people to rein in their spending in other areas.

At the same time, many food prices have surged to record levels because of increased demand and inclement weather in key producer nations.

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