Increasing costs for food, utilities, fuel and air transport pushed prices up. Oil is nearing $100 a barrel, and food prices rose a record 1.6% between November and December. And unfortunately, with the VAT hike having kicked in just after December's CPI figures, inflation looks set to rise even further over the next few months - possibly to 4%.
The Bank is facing increasing pressure to increase the 0.5% interest rate it's stuck to for 18 months. There is dissent even within the ranks of the Monetary Policy Committee. MPC member Andrew Sentance publicly cried for a rise in base rates in The Telegraph back in November, citing a positive bounce back in global growth and UK GDP growth of 2.8% in the year to November 2010 (higher than expected), plus employment rises.
Sentance warned that keeping the rates at 0.5% could spell a much steeper rise in the Bank's interest rates in the future, shocking a recovering economy back into decline or stagnancy, and/or damaging the Bank's credibility by suggesting it isn't taking the government's 2% inflation target seriously.
But all the arguments for and against the Bank's low interest rate form a jumbled alphabet soup of possible consequences, with one certain future impossible to spell out. The BBC's economics editor Stephanie Flanders touches on the flux-like topsy-turviness of trying to predict what would happen if the Bank's interest rate was either kept constant or increased - the knock of effects of employment or unemployment, wage increases or none, and so on, all theoretically possible in any given circumstance.
What does all this mean for small business owners?
The price of day-to-day items will likely continue to rise whatever the Bank decides about its interest rate, as inflation looks set to keep nudging upwards regardless. Watch out in particular for energy and fuel prices, which will most likely continue climbing skywards.
So, clearly, be prudent in your purchasing, and reduce your utilities bills and travel costs if at all possible.
Keep in mind too that with the base rate so low, the vast majority of savings accounts are losing value in real terms, as the amount of interest you earn is less than inflation. If you're planning on acquiring any high-cost assets over the next year, such as expensive equipment or property, it might make more financial sense to spend now - though of course you need to watch your cashflow too.
On the positive flip side, borrowing money should in theory be cheaper while the Bank's base rate remains so low, though of course actual rates will depend on your bank and circumstances. (If you do need a bank loan, you can apply for a RBS or NatWest business loan on Smarta in less than 30 minutes.)
Be aware that at some point this year, if inflation keeps climbing, employees may start asking for pay rises to keep up with their own escalating costs. Draw up financial and cashflow forecasts for the year ahead early to see if you can accommodate wage increases and to ensure you can manage inflationary pressures. Our guides on financial management will help.