The December inflation rate is set to rise again when the figures are released next week.
The CPI inflation rate stood at 3.5% in November, but petrol and food prices have both risen since, along with wages.
Susannah Streeter, head of money and markets, Hargreaves Lansdown, said: “The months ahead are fraught with uncertainty about just how companies will deal with the higher rate of National Insurance contributions they’ll have to pay this year.
“Some big retailers have already said prices will go up, but there is a chance others will also limit wage increases to offset the extra costs.
“When it comes to decisions on interest rates, even though inflation is still set to veer further away from target, policymakers will have an eye on the struggling economy, so they’re not going to want to push rate cuts too far down the track.
“Although infrastructure investment is expected to buoy growth, highly cautious companies, worried about increases in tax, could limit investment.
“So, it still seems likely that the Bank of England will vote for at least two interest rate cuts over the year, with a 66% probability of a cut in February being priced in by financial markets.”
In December three members of the Bank of England’s Monetary Policy Committee voted for a base rate cut.
