Retail sales jumped 6 per cent in February as the prices of goods and services continue to climb at ever faster rates

Inflation climbed to 3.5 per cent, its highest point in almost three years last month after prices rose across most parts of the economy, according to the Central Statistics Office.

The inflation figures came on the same day that the CSO released data showing a 6 per jump in retail sales in February as consumers spent more money on home improvements and interiors.

Some economists now believe the annual rate of inflation could climb to 4.5 per cent by the end of the year. The March increase took most commentators by surprise, particularly since it came after another high annual jump in the previous month.

"What was unusual about March is that virtually everything rose, but nothing really fell," said Pat McArdle, chief economist with Ulster Bank. Mr McArdle believes that while prices are creeping up, there may be "one or two special factors" at work too.

He noted, for example, that food prices rose strongly for the second month in succession, a movement which pushed the annual rate up by 0.2 percentage points on its own.

"It is suspicious that this happened immediately before the Groceries Order was lifted. Can we look forward to an unwinding in the coming months?" Mr McArdle asked.

The jump in retail sales points to consumers renovating their homes as property prices surge. The volume of hardware, paints and glass sales climbed 5.1 per cent from February 2005, while furniture and lighting sales rose 4.1 per cent. Sales of textiles and clothing increased 6.9 per cent.

Furniture and lighting sales rose to post the biggest gain of all retail sales sectors between November and January. The first month of 2006 is the latest month for which final retail figures are available.

Excluding motor trades, which are often volatile, retail sales in volume terms increased 0.6 per cent from January. The value of retail sales rose 8.2 per cent from a year earlier, and climbed 0.8 per cent from January, when motor trades are stripped out.

Annual inflation accelerated to 3.5 per cent in March from 3.3 per cent in February, another CSO report showed yesterday.

Other key drivers behind the year-on-year increase came in restaurants and hotels, health charges, air transport and local authority rents.

The CSO said inflation had grown by 0.4 per cent between February and March, with the monthly rise due in part to the recovery of clothing and footwear prices after traditional January sales.