Inflation hits 30-month high to move closer to target

Prices of vegetables and pulses contracted 15.62% and 6.62% in January

The consumer price index rose 1.9 percent year-over-year in January, following a 1.7 percent climb in December.

The CME FedWatch indicator puts the chances of a rise in March at just 17 percent but some market participants say pricing of market interest rates points to odds of 30 percent or more, rising to more than 50 percent for May.

The fuel component of CPI rose afresh on rising crude oil prices and weaker rupee.

However, fuel group inflation accelerated 18.14% in January from 8.65% a month ago, due to rising petrol and diesel prices.

US producer prices rose more than expected in January, recording their largest gain in four years amid increases in the cost of energy products and some services, but a strong dollar continued to keep underlying inflation tame. USA crude CLc1 settled down 0.2 percent at $53.11 and Brent LCOc1 closed down 0.4 percent to $55.75 a barrel. Wholesale gas prices surged nearly 13% in January.

The rise in wholesale inflation is in contrast to the fall in retail inflation, which hit a five-year low of 3.17 per cent in January.

At the same time, deflationary pressures from food prices have slowed down, supporting near-term projections by the central bank that inflation will continue to rise over the first quarter of this year, first reaching and then likely surpassing the target of 2 percent for the period.

Retailers face higher costs from imported goods, fuel and the national living wage, but are generally engrossed in price wars to win market share. BoE Governor Mark Carney this month warned of "twists and turns" ahead as Prime Minister Theresa May starts two years of formal Brexit talks.

Strong consumer spending helped power growth in the final months of previous year, with GDP expanding by 0.6 per cent in the fourth quarter, in line with the second and third quarters.

On Tuesday, Yellen hinted more rate increases were on the way as the jobs market has improved and inflation has shown signs of nearing the Fed's 2 per cent goal. They previously rose by 21.1% and 9.8% respectively in the 12 months to December. The former is more important to family budgets with a weight in the CPI of 1.4 percent, while nonprescription drugs have a weight of less than 0.4 percent.

The ONS said that sterling weakness, which has seen the pound fall by some 16% since the June Brexit vote, had contributed to increase in price across both categories.

Moreover, the department said, wholesale food prices were unchanged after climbing 0.5% in December.

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