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Inflation 'up faster than expected'

Inflation is rising faster than predicted, according to expected figures from the Office for National Statistics.

More price rises will also be likely throughout 2011.

Economists believe the latest data will show that the consumer prices index (CPI) increased to 3.4 per cent during December, up 0.1 per cent on Novembe's rate.

The Bank of England has said the index is likely to reach 3.5 per cent early this year because commodity prices will keep rising, thanks to the increase in VAT from 17.5 per cent to 20 per cent.

Some economists say inflation has failed to reach its 2 per cent target since November 2009 because the pound is devalued, VAT increased last year and because commodities such as oil, coffee, sugar, cotton and wheat are more expensive.

December's increases in the price of petrol and domestic gas and electricity will also push up inflation.

Investec's Philip Shaw said: "It seems likely that inflation will exceed the 4 per cent level later in the year and there seems a growing risk that the targeted measure will remain in excess of 2 per cent through 2012."

Economists at Barclays Capital forecast a 3.6 per cent rise in inflation last month. A note from the bank said: "We expect CPI inflation to rise to around twice the target rate during the first quarter. We expect inflation to remain well above target throughout 2011 before dropping slightly below target at the start of 2012."

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