The Consumer Price Index showed that inflation rose to 1.6% in December last year, from 1.2% in November, the Office for National Statistics has said.
It is the highest rate of inflation since July 2014, and outperformed economists' median forecast of 1.4%.
The rise has been blamed partly on the rise of air fares and food prices.
ONS head of inflation Mike Prestwood said: "This is the highest CPI has been for over two years, though the annual rate remains below the Bank of England's target and low by historical standards.
"Rising air fares and food prices, along with petrol prices falling less than last December, all helped to push up the rate of inflation.
"Rising raw material costs also continued to push up the prices of goods leaving factories."
It comes a day after Bank of England governor Mark Carney warned the depreciation of sterling following a vote for Brexit may have a delayed impact on wages and consumer spending.
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The pound fell to its lowest value for more than three months after reports Theresa May is to propose a "hard Brexit".
Before making a slight recovery on Monday, Sterling fell to below $1.20 - its lowest point since October's "flash crash".
The drop comes ahead of the prime minister's speech on Tuesday regarding her approach to Brexit negotiations.
Some Sunday newspapers said Mrs May was heading towards a departure from the single market.
Sterling's slump in the Asian markets also came after Chancellor Philip Hammond suggested ministers could slash corporation tax rates if Briton was frozen out of the single market.
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The FTSE 100 Index has closed at another all-time high of 7,177.89.
It follows a dramatic rise in the UK's blue chip index at the end of 2016, which saw it break its own records three days in a row.
London emerged as the best performing stock market in Europe last year, finishing 2016 more than 14% higher despite the vote for Brexit.
The pound's fall has proved beneficial for global companies listed on the index, as they earn in currencies that are stronger than sterling.
Investors were seemingly optimistic after last week's "Santa rally" - a market phenomenon where stock prices rise during the final trading days of the year.
Connor Campbell, a financial analyst at Spreadex, said: "For now, at least, investors are ignoring the potentially disruptive events littered across 2017 - most pertinent to the FTSE being March's triggering of Article 50 and the impending announcements related to the banking sector's decision whether or not to stay in the UK post-Brexit - to get behind the UK index.