Petrol prices 'driving inflation'

Rising petrol prices are continuing to drive inflation, despite news of a surprise fall in inflation rates overall, it has been revealed.

The Consumer Prices Index (CPI) rate of inflation dropped by 4% in March, down from 4.4% in February, the Office for National Statistics revealed. City analysts were stunned by the fall after they expected CPI to hold at 4.4%.

Although the drop will weaken calls for increased interest rates, inflation is still double the Government's 2% target.

While lower inflation is good news for motorists in terms of repairs andcar insurance, the continued strength of prices at the pump will still be a cause for concern.

A 1.2% rise in transport prices also kept upward pressure on inflation between February and March.

Fuels and lubricants made the largest contribution, with petrol prices increasing by 2.7% to reach record levels of £1.32 for petrol and £1.38 for diesel.

The rising cost of oil is being pushed upwards by the conflict in Libya, where supply has been heavily restricted.

The drop in the cost of living was driven by falling food prices, the ONS said, which slipped 1.4% - the biggest month-on-month drop since between June and July 2007 - as supermarkets rolled out heavy discounts to draw in cautious consumers.

The improved figures will be welcomed by the Bank's Monetary Policy Committee (MPC), which has been under pressure to raise interest rates from their historic lows of 0.5% as it battles with stubbornly high inflation.

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