Producer prices at eight-month high

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Producer output prices rose 4.2 per cent year-on-year in December, the highest annual rate since April

Factory-gate inflation spiked to an eight-month high in December as cost pressures in the manufacturing sector continued to intensify, figures have revealed.

Producer output prices rose 4.2% year-on-year in December, above forecasts for a rise of 3.9% and the highest annual rate since April, said the Office for National Statistics (ONS).

Input prices were 12.5% higher in December – also the largest annual rate since April.

Economists said the figures would put further pressure on the Bank of England as it battles against stubbornly high inflation.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “The producer price data will do little for the Bank of England’s peace of mind. The data show mounting inflationary pressures in the supply chain, adding to the Bank of England’s problems and increasing pressure for an interest rate hike sooner rather than later.

“While our central forecast remains for the Bank to hold off from raising interest rates until the fourth quarter, given likely markedly slower growth over the coming months as the fiscal squeeze increasingly bites, the risk of a move before then is mounting.”

The figures revealed a rise in the cost of crude oil over the year accounted for almost half of the annual leap in input cost inflation, with increases in food and imported metals also a factor.

In November, consumer price inflation increased to 3.3%, well above the Bank’s 2% target. The Monetary Policy Committee (MPC) believes the rate of inflation is not likely to ease back until later this year.

Samuel Tombs, UK economist at Capital Economics, said there was a long lag between producer and consumer prices which should mean the current surge in producer prices will not hit CPI inflation until 2012.

But he added: “Nonetheless, today’s figures will no doubt fuel the arguments in some corners that the MPC should act immediately to ward off these inflationary pressures.”

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