Growth in Inflation Due to VAT Rate Returned to 17.5%

Written by Becky on Wednesday 17 February 2010

Increase in VAT Rate Leads to Record CPI Growth?

The Office for National Statistics (ONS) yesterday released records of the highest Consumer Price Index (CPI) annual inflation rate for over a year.

The ONS revealed that the UK CPI annual Inflation rate increased to 3.5% in January 2010, a 0.6% rise from 2.9% in December 2009, the second largest ever increase in the annual rate between two months.

This record monthly movement is thought mainly to be due to the increased standard rate of Value Added Tax (VAT) from 15% to 17.5% in January 2010.

Fuel Costs

A further contribution to the recent increase in inflation between December and January came from transport as fuels and lubricant prices rose this year by 2.2%, a record rate of growth compared with a fall of 3.4% a year ago.

Retail Prices Index Affected by Increase

The recent increase in VAT also lead to the strongest Retail Prices Index (RPI) monthly improvement for a December to January period for over 10 years since 1997, with the RPI remaining at the same level.

The last time the RPI had positive growth between December and January was in 1991 when an increase of 0.2% was recorded.

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