Inflation rise piles on pressure
Evidence that pipeline inflation pressures are continuing to build will worry Bank policymakers at a time when consumer price inflation is nearly double its 2 per cent target and still rising.
The Office for National Statistics said producer input prices rose 13.4 per cent on the year in January, the biggest annual rise since October 2008 and well above forecasts for an annual rate of 12.6 per cent.
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Hide AdProducer output prices rose 4.8 per cent on the year, the highest annual rate since May 2010. On the month, prices jumped one per cent, double what economists had predicted.
“This is one more troubling piece of evidence for the Monetary Policy Committee to consider when weighing up the inflation story,” said Brian Hilliard, UK economist at Societe Generale.
“It appears manufacturers are gaining increasing pricing power.”
The central bank is having to juggle soaring price pressures with a fragile economic recovery and it held interest rates steady this week at 0.5 per cent, the record low they have stood at since March 2009.
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Hide AdGovernor Mervyn King maintains that inflation is being driven by external factors over which the central bank has no control, and one-off domestic factors such as the rise in value added tax.
However, two members of the MPC are worried that inflation may become entrenched and voted in January for an immediate rise.
The Bank will publish updated quarterly inflation and growth forecasts on Wednesday.