The Consumer Prices Index (CPI) was pushed up to an annual rate of 3.2% in February, from 3% a month earlier largely due to the rising price of imported goods – especially fruit, vegetables and toys.

But the Retail Prices Index (RPI), which also includes the cost of mortgage repayments, has fallen sharply to zero raising fears that deflation (i.e. widespread falling consumer prices) is more likely. Such falls will push the CPI measure of inflation into negative territory later in the year. A prolonged period of deflation is damaging to the economy as consumers put off spending in anticipation that prices will fall further, hitting retailers and manufacturers.

Economists had predicted that both measures of inflation would fall and the Office for National Statistics (ONS) suggested that December's cut in VAT from 17.5% to 15%, was possibly being reversed as a large number of shops decided not to pass on the cut now that Christmas trading is over.

The fall in RPI could have consequences for workers, the unemployed and pensioners since salary increases, welfare benefits and pensions are all broadly linked to RPI.