Inflation hit 5.4% last month, the highest figure recorded since March 1992 and up from 5.1% in November, itself a decade high.
ONS figures showed strong increases in the cost of food, furniture and clothing as all contributing to the cost of living squeeze.
All eyes will now be on the Bank of England, which next meets on February 3rd, with inflation now well beyond its 2% target.
After becoming the first major central bank to up interest rates in the wake of the pandemic it now looks increasingly likely that the BoE will act again.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Inflation rates for four key components likely will rise further over the coming months, culminating in the headline rate probably peaking slightly above 6% in April.
“First, clothing inflation, which increased to 4.2% in December, from 3.5% in November, likely will rise further as the anniversary of the Q1 2021 lockdown is reached. Second, December’s 8.7% rate of core output price inflation—the highest since at least 1996, when consistent records begin—points to scope for core goods inflation to step up from December’s 5.2% rate.
“Third, the surge in wholesale energy prices suggests that Ofgem will increase its default tariff price cap by around 43% in April, resulting in a 1% leap in the contribution of electricity and natural gas prices to the headline rate. And fourth, services inflation will rise further in April, when the rate of VAT paid by hospitality and tourism business will return to 20%, from 12.5% currently.
“Nonetheless, we continue to expect CPI inflation to fall back swiftly after April and ultimately to undershoot the 2% target in 2023.”
