Inflation at factory gate slows slightly

Pressure on the Bank of England over rising prices eased yesterday as the rate of inflation for goods leaving British factories slowed in June.

Manufacturers increased prices by 0.1 per cent between May and June, down from 0.2 per cent in the previous month and compared with rises of more than one per cent in three of the first four months of 2011.

Core factory gate inflation, which excludes food, drinks and petrol, fell year-on-year from 3.4 per cent to 3.2 per cent, although the annual rate of overall producer price inflation rose to 5.7 per cent, a 32-month high, due to the comparable period in 2010 seeing a 0.2 per cent drop in prices.

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Soaring inflation hit 4.5 per cent in May, more than twice the Bank’s target of two per cent.

On Thursday policymakers held interest rates at their historic low of 0.5 per cent for the 28th month in a row amid fears over economic growth.

The rising cost of living, coupled with muted wage growth, has stifled consumer spending power in recent months.

The impact is seen on the high street, where retailers such as JJB, Mothercare and HMV are closing stores and in some cases, such as Jane Norman and TJ Hughes, entering administration.

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Food prices rose by 0.4 per cent month-on-month and food manufacturers’ prices are now 8.9 per cent higher than this time last year, which economists say is likely to have an impact on the retail prices figure for June next week.

There were also big rises for paper and printing and other manufactured products due to rises in rubber and repair costs, although petroleum products prices fell.

Economists said the figures highlighted the pressure being put on firms’ profitability as input prices, which include costs of raw materials, power and fuel, increased by 0.4 per cent and are now running at a annual rate of 17 per cent.

Vicky Redwood, senior UK economist at Capital Economics, said the 0.4 per cent monthly rise in input prices was a bit disappointing “but provided that oil prices don’t rise any further, input price inflation should now be fairly close to a peak”.