Updated on 16 February 2010
Inflation has surged, but it is only temporary insists the Bank of England's governor after he was forced to write his sixth letter of explanation to Chancellor Alistair Darling.
The consumer price index rose by 3.5 per cent in the year to January, according to the latest figures published by the Office for National Statistics.
That is up from 2.9 per cent the previous month.
The increase between December and January is the second largest ever recorded. Worryingly, this follows an increase of one per cent in the inflation rate between November and December last year.
So the two largest monthly increases in inflation on record have occurred in consecutive months.
Part of the explanation is a technical one. Back in November 2008, the government cut VAT from 17.5 per cent to 15 per cent in a move it hoped would boost the economy.
When VAT was cut, that lowered the inflation rate. Now it has been pushed back up, that has made the inflation rate go back up.
Liberal Democrat Treasury spokesman Vince Cable said: "This figure is a stark reminder that, despite the small growth in the economy at the end of last year, we are still living in very uncertain times.
"The Bank of England's explanation of this as a temporary blip is welcome but there is a danger that inflation will stay high while growth remains low."
The other main factor at work is petrol prices.
In the last month, the fuel element of the inflation rate has gone up by 2.2 per cent. But go back a year and petrol prices were actually falling by 3.4 per cent, a big switch that helped to push inflation higher.
The big increases have added significance because the Bank of England has to keep inflation within a target range of one per cent to three per cent.
With inflation now rising above that target range, Mervyn King, the Governor of the Bank, has had to write a letter to Chancellor, explaining what has gone wrong.
The Governor argues that the petrol and VAT changes are temporary, and over the course of the year, inflation is likely to fall back because the fragile state of the economy will make it hard for companies to push through higher prices.
Mr King also notes that pay rates are growing very slowly, so at this stage, there is little sign of a wage-price spiral taking off.
In a reply, Alistair Darling, the Chancellor, broadly accepts the Bank's analysis that this rise in inflation will be temporary.
The bad weather at the start of January also had an impact, with many vegetables, like cauliflower, in short supply and therefore more expensive.
There was some good news though, with a decline in the price of fruit, notably bananas, thanks to heavy discounting by supermarkets.
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