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VAT increase drives inflation to 3.5% in January

The Consumer Prices Index (CPI) rose to 3.5% in the year to January, up from 2.9% in December, according to the Office for National Statistics.

In the year to January, the Retail Prices Index (RPI), which includes the cost of mortgages and housing, rose to 3.7%, up from 2.4% in December.

The increase in CPI means that Mervyn King, the governor of the Bank of England, will have to write a letter to the Chancellor explaining why inflation has risen more than one percentage point above the 2% target.

The Consumer Prices Index fell by 0.2% between December and January. The ONS said while this is negative, it is the strongest ever CPI growth between these two months. Prices typically fall at a faster rate between December and January.

This record monthly movement in inflation is mainly due to the increase in January of VAT and to a lesser extent the price of crude oil.

The two factors also affected the RPI between December and January.

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