Shoppers hit by inflation shock

The Government's official measure, the Consumer Prices Index, jumped from three per cent to 3.2 per cent last month.

It stunned City economists, who had been predicting a fall to 2.6 per cent.

The increase was also attributed to rising supermarket prices and many shops' decision to reverse the 2.5 per cent cut in VAT brought in by the Government in an attempt to stimulate the economy. Gas prices went up year on year by 33 per cent.

Another major contribution to the rise in the CPI came from fresh vegetables, which have gone up 23.8 per cent in a year and almost five per cent in a month. The Office for National Statistics said carrots, cucumbers and courgettes were among those rising fastest in price. Other foods that have gone up dramatically include pizza and mayonnaise. Richard Lim, a spokesman for the British Retail Consortium, said: "The weak pound has increased the cost of imported food, such as certain fruits and vegetables, which aren't harvested here at this time of year.

"The weak exchange rate has also made UK produce more attractive for overseas buyers, restricting supplies of beef and lamb at home and pushing prices up. Non-food goods such as clothing, footwear and some electricals are cheaper than they were this time last year."

Alan Clarke, UK economist at BNP Paribas, said the inflation figure was "much higher than expected, with the exchange rate probably to blame for now."

Transport prices also rose, reflecting an increase in the price of petrol of 3.2p per litre between January and February, the ONS said.

About 70 per cent of fresh fruit at this time of year comes from overseas.

ONS statistician Rob Pike added that the cut in VAT from 17.5 per cent to 15 per cent which was introduced in December, was being reversed on the high street. He said: "We have seen many prices return to the previous selling price in November, or even gone beyond that. And that is quite widespread."

The broader measure of inflation, the Retail Prices Index, did fall slightly from 0.1 per cent to nought per cent, but this was also less than expected.

Most forecasts predicted that the RPI, which includes the cost of housing, would go negative for the first time since March 1960, ushering in a period of deflation.

The RPI is widely used by employers as a benchmark for wage increases and its fall to zero means that most workers will get a pay freeze or only a nominal rise this year.

John Philpott, chief economist at the Chartered Institute of Personnel and Development said: "For millions of workers, this will be a spring and summer of pay depression, as pay rises give way to widespread pay freezes or pay cuts.

"For the vast majority of workers, accustomed as most of us are to an annual boost to our pay packets, a pay freeze or pay cut will feel like a hardship, especially while the CPI measure of inflation continues to rise."

The unexpectedly high level of inflation forced Bank of England Governor Mervyn King to write a letter to Chancellor Alistair Darling explaining why it is still above the two per cent target.

Economists pointed to prices that are expected to fall over the coming months.

Gas and electricity prices, though sharply higher than a year ago, are now starting to subside as the effect of cheaper oil starts to flow through.

They also said that the latest rise in the CPI was unlikely to deter the Bank of England from continuing with quantitative easing or keeping interest rates at 0.5 per cent for an extended period.

Vicky Redwood, of Capital Economics, said: "Today's inflation figures do not change our view that there is a significant danger of a broad and long-lasting bout of falling prices."

Letters between the Bank of England and the Chancellor explaining the rise in inflation

Letter from Governor to Chancellor (pdf)
Reply from Chancellor to Governor (pdf)