Inflation rose to 3.1% in November, the highest in nearly six years, as the squeeze on households continued.
The Office for National Statistics (ONS) said that airfares and computer games contributed to the increase.
The most recent data shows that average weekly wages are growing at just 2.2%. Mark Carney, the governor of the Bank of England, will now have to write a letter to Chancellor Philip Hammond explaining how the Bank intends to bring inflation back to its 2% target.
Mr Carney has to write a letter to the chancellor if the Consumer Prices Index (CPI) inflation rate is above 3% or below 1%. Close to peak? In November, the Bank of England raised its key interest rate for the first time in more than a decade from 0.25% to 0.5%.
However, it is not expected to announce a further increase when it publishes the results of the Monetary Policy Committee’s two-day meeting on Thursday. Mr Carney had said that he expected inflation to peak in October or November. Lucy O’Carroll, chief economist at Aberdeen Standard Investments, said: “It’s quite possible that inflation is now close to its peak.
But some of the latest surveys suggest that service sector costs and prices are rising. Given how dominant services are in the economy, this could feed through to inflation overall. “That means that further interest rate rises are definitely not off the table.”
The ONS said that although airfares fell in November – down 10.4% – the decline was not as steep as last year when they tumbled 13.4%. Data also shows that food inflation has picked up, especially prices for fish, oil and fats, such as butter and chocolate.
Richard Lim, chief executive at Retail Economics, said that the rise in inflation had come “at precisely the wrong time for retailers”. “In the run-up to Christmas, the cost of living, now rising at the fastest rate in five years, remains uncomfortably high for households.”
He said that food inflation “is one of the most transparent indicators of living costs and often the catalyst to cut back on spending elsewhere”. However, he expects the inflation rate to now fall and could reach 2.5% by Easter.
The ONS will announce employment data for the August to October period on Wednesday, which will include figures for wage growth. Ben Brettell, senior economist at Hargreaves Lansdown, forecasts that average weekly wages have risen by 2.5% during the period. He said: “With wage growth picking up we should see an end to falling real pay in due course. “That’ll be of small comfort, however, to households facing a significant increase in the cost of Christmas this year.”