Factory gate inflation higher than expected in August

| September 9, 2011
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The Office for National Statistics (ONS) has today revealed UK producer output prices held steady in August – remaining at the highest annual rate since October 2008.

According to the ONS, output prices (factory gate) annual inflation for all manufactured products held steady at July’s upwardly revised reading of 6.1% in August.

The figures were a surprise to analysts who had expected a modest fall.

Meanwhile, input prices for August slowed to 16.2% on an annual basis – the lowest level since March – attributed to falling fuel prices. Oil prices have fallen by around one fifth from their 2011 peak in May.

Analysts had expected input prices to rise to 16.7%.

On a monthly basis meanwhile, output prices rose 0.1% from July when they increased by a revised 0.3%, while input prices fell 1.9% on the month – the most since April 2009.

The gain in monthly output prices was attributed to a 1% increase in chemicals and pharmaceuticals, the ONS said, while the fall in input prices was led by a 5.9% drop in crude oil.

According to analysts, today’s figures suggest producer and consumer price inflation could slow in the short-term.

The figures come as the Bank of England opted to keep interest rates at the historic low of 0.5% yesterday.

Interest rates have now been at this low level since March 2009 – when the economy was in the midst of recession.

Recent figures show the economy appears to be faltering so it was understood that the central bank is reluctant at this stage to lift interest rates as the recovery is losing momentum.

Some economists believe the bank will not lift rates again until 2013.

However, the Bank has come under pressure lately to lift interest rates to combat stubbornly high inflation – which is currently running at more than double the 2% target.

Some analysts believe the central bank may restart its quantitative easing (QE) programme in the near future, particularly if the economy weakens further.

Following today’s release of data, sterling remained higher against the dollar, trading at $1.5988 – up 0.2% from yesterday.

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