Inflation fears as prices at the gate increase

The outlook for inflation was dealt a further blow yesterday as official figures revealed a bigger-than-expected rise in factory gate prices last month.

Manufacturers increased their prices by 0.8 per cent between March and April, leaving them 5.3 per cent higher than a year ago, as they passed on the cost of soaring commodity prices.

Consumers shopping for clothes were braced for a particular hit as the sector saw a 1.3 per cent rise in output prices, while crude oil posted the largest monthly input price gain of 7.1 per cent.

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The significance of the figures may be watered down after a raft of troubling economic data triggered a massive drop in commodity prices, including oil and metals, towards the end of the week.

Companies are under pressure from sharply rising input costs – which rose 2.6 per cent between March and April – to lift output prices.

Improved manufacturing activity gave companies greater scope to push through price hikes but this could be tapering off as recent indicators have suggested the sector is struggling.

Economists said the increase in factory gate prices was unlikely to push policymakers at the Bank of England – fighting to cap surging inflation – towards an interest rate hike.

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Howard Archer, chief UK and European economist at IHS Global Insight, said elevated concerns about the economy’s fragility and ability to withstand the Government’s fiscal squeeze overshadowed price pressures.

He said: “The producer price data are nasty, but the current sharp falling back in oil and commodity prices lifts hopes that cost pressures on manufacturers will ease and reduce the pressure on them to raise their output prices.

“The Bank of England will also be hoping that manufacturers’ ability to raise their prices further will be limited by significant excess capacity. Current tentative signs that manufacturing activity may be coming off its highs may temper manufacturers’ pricing power.”

The figures will not be welcomed by businesses across Yorkshire, which are struggling with rising costs of raw materials and waning consumer demand.

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David Kern, chief economist at the British Chambers of Commerce (BCC), said the increase in output and input prices intensifies the pressures facing businesses.

He said: “The Bank’s monetary policy committee will find these figures uncomfortable, but they do not justify any change in interest rates in the short-term.”

He said the sharp decline in the price of oil, gas and other commodities lifted hopes that prices slow or even reverse. He also called for ministers to ease the regulatory burden on businesses.