Biggest monthly jump in cost of living for six years surprises the City

Biggest monthly jump in cost of living for six years surprises the City

The TUC called last night for wages to keep pace with the rising cost of living after surging food and energy bills prompted the biggest one-month jump in Britain's inflation rate for almost six years.

Amid concerns that the low paid and the elderly would be hit hardest by the rising cost of staple goods, the TUC's general secretary, Brendan Barber, said: "Employers in the private and public sectors must make sure that pay settlements keep pace with the consumer prices index of inflation. Anything less will see low-paid workers continuing to struggle to make ends meet."

Data from the Office for National Statistics (ONS) released yesterday showed inflation as measured by the consumer prices index up from 2.5% in March to 3% in April. Any further increase in the government's preferred measure of the cost of living would require the governor of the Bank of England, Mervyn King, to write an explanatory letter for only the second time since Threadneedle Street was granted independence 11 years ago.

The City was taken by surprise at the sharp rise in inflation and now believes it unlikely that the Bank's nine-strong monetary policy committee will cut interest rates to boost the flagging economy when it meets early next month. Despite the slowdown in growth, the Bank fears the possibility that rising costs will prompt companies to raise prices and pay bargainers to push up wages, thereby leading to an inflationary spiral.

Barber said yesterday: "As.....continued below

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the price of basic food stuffs and energy costs soar, it's those on benefits or in low-paid work whose family budgets are being squeezed the hardest. The poorest in society have no choice but to spend a big proportion of their income on essentials like petrol and food, and they have no savings to call upon when things get tough. Global forces are essentially what is behind rising costs in the UK, not wages."

Age Concern's director general, Gordon Lishman, said: "Many older people spend a higher proportion of their income on essential items such as food, gas and electricity than other age groups. Inflation-busting increases in the price of these goods in recent months have left many pensioners short of cash and struggling to afford even the most basic household bills. This year alone, rocketing energy prices have pushed 600,000 of the poorest and most vulnerable households into fuel poverty, many of them pensioner households.

"Small, annual increases to the basic state pension have simply failed to keep pace with the escalating cost of living for older people, and the real value of the basic state pension will continue to fall until it is re-linked to earnings. The government must increase the state pension, reinstate the link to earnings as quickly as possible and do more to get benefits cash to those who need it. We also want Gordon Brown to hold a summit to get the government's fuel poverty strategy back on track."

A breakdown of yesterday's ONS data revealed that food prices were up 6.6% over the past year - the highest rise since the CPI was first used as a yardstick for inflation in 1997. Households are also being hit by rising energy prices, with the electricity, gas and other fuels element of the CPI 8.3% up on April 2007. Peter Spencer, economic adviser to the Ernst & Young Item club, said: "The CPI understates the pressure of staples such as food and energy prices on low-income families."