Higher inflation is set to continue for the rest of this year, the governor of the Bank of England has said, after its former chief economist predicted it could hit almost 4%.
Andrew Bailey said the high figures have been caused by prices returning to pre-Covid levels and demand outstripping supply.
But he expects the rise to be “temporary” as the economy recovers from the coronavirus pandemic and restrictions continue to ease.
Speaking at his annual Mansion House speech in London, he urged economists not to "overreact" and said the BoE would bring in new measures to reduce high spending, should inflation not cool, such as increasing interest rates.
The UK rate of inflation rose to 2.1% - above the Bank of England's 2% target - after lockdown measures eased and consumer spending picked up.
He said: “It is important not to overreact to temporarily strong growth and inflation, to ensure that the recovery is not undermined by a premature tightening in monetary conditions.”
However, he added: "It is also important that we watch the outlook for inflation very carefully.
“There are shortages of some products, notably semi-conductors, some agricultural commodities, and some end-user products such as fitness equipment and home and garden furniture.”
High demand has seen several manufacturers, including Jaguar Land Rover and Honda, suspend production at their factories over the last few months due to a shortage in supplies of car computer chips.
Families have also reported a shortage in garden furniture and outdoor toys, following a combination of coronavirus, Brexit and delays caused by the Suez Canal blockage.
The BoE expects inflation to rise close to 3% this year, but fears were raised this week that it could go higher than this.
It comes after after the now-former chief economist at the central bank, Andy Haldane, said he expects it be nearer 4%.
Mr Haldane, who finished his last day on the BoE Monetary Policy Committee yesterday after 32 years at the Bank, said the economy was "surfing as high a wave as any in its history".
He added: "By the end of this year, I expect inflation to be nearer 4% than 3%.
"This increases the chances of a high inflation narrative becoming the dominant one, a central expectation rather than a risk.
"If this risk were to be realised, everyone would lose – central banks with missed mandates needing to execute an economic handbrake turn, businesses and households facing a higher cost of borrowing and living, and governments facing rising debt-servicing costs."
His warning came after retail sales surged in May by the most since the Covid-19 pandemic began as shoppers returned to high streets.
The British Retail Consortium said total sales increased by 10% in May compared with the same month in 2019.
