The value of the pound tanked after the United Kingdom voted to leave the European Union, while the continued low interest rates and quantitative easing were expected to result in higher inflation.
The Federal Reserve has raised its key interest rate for the third time in six months, providing its latest vote of confidence in a slow-growing but durable economy. Meanwhile, the unemployment rate was 4.6%, down from 5.0% a year earlier and the joint lowest since 1975.
Consumer Price Index inflation unexpectedly hit 2.9 per cent last month, which was the highest level since June 2013 when it last stood at that level.
The largest downward contributor to inflation came from transport, with the costs of petrol and diesel falling for a third successive month, compared with price rises past year.
Over the past two months alone, CPI has risen by 0.6%.
- A more cautious Fed? "Delay will push the next lending rate cut to the next slack season commencing April", the report noted.
"Although inflation has surprised the BOE on the upside, we expect the MPC to look through this temporary spike in inflation and hold monetary policy stable until mid-2019", said Kara.
Given that the energy prices were widely anticipated to fall, eyes were on core inflation, which rose a modest 0.1 percent in the recent string of weak readings.
The estimates also showed that average weekly earnings for employees in the United Kingdom in nominal terms increased by 2.1% including bonuses, and by 1.7% excluding bonuses, compared with a year earlier.
Libya and OPEC Pressure Crude Oil Prices to a 3-Week Low
West Texas Intermediate light crude extended gains after the data and was 1.4%, or 68 cents, higher at $49 a barrel, as of 10:33 a.m.
The Fed has a 2 percent inflation target and tracks an inflation measure which is now at 1.5 percent. Core goods prices fell 0.3 percent.
Nevertheless, James Bohnaker of IHS Markit said seasonal factors likely exaggerated the effect of falling energy prices on overall inflation because gasoline prices typically rise in the spring, ahead of the USA driving season.
USA retail sales recorded their biggest drop in more than a year in May amid declining purchases of motor vehicles and discretionary spending, which could temper expectations for a sharp acceleration in economic growth in the second quarter. "So this decline will not likely be repeated in June".
Excluding automobiles, gasoline, building materials and food services, retail sales were unchanged last month after an upwardly revised 0.6 per cent rise in April.
May's CPI surge sees inflation rise further above the Bank of England's 2% target and will put pressure on policymakers to consider hiking rates beyond 0.25%.
That was the smallest increase since last November and followed a 2.2 percent gain in April.
The shift towards internet retail continued apace, with department stores declining a full percentage point while "non-store" retailers soared another 0.8 percent for the month.
Computer equipment also rose, particularly in areas like data processing which saw costs rocket 3.4%.
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