Producer price inflation fears alleviated

17-08-2006

The UK's producer price index rose by 2.8 per cent in the 12 months to July, reflecting volatile energy markets and rising petrol prices, official statistics have revealed.

This month's increase in the output price index for home sales of manufactured products compares favourably to the 3.4 per cent growth experienced in the year to June.

Today's government announcement is an indicator of the price levels that wholesalers and manufacturers have paid during the last month, with consumers set to feel the effects of any changes in household prices during the coming months.

Howard Archer, chief UK and European economist at research firm Global Insight, said that this month's data was "more benign than expected", explaining that the seasonally-adjusted rise of 0.1 per cent between June and July should "temper concerns" that high energy prices were adversely affecting individual price indices.

"Nevertheless, with input prices rising sharply in July itself and oil prices hitting new highs in early August, manufacturers will still be looking for opportunities to pass on more of their higher costs and boost their margins," he added.

Wholesale tobacco and alcohol prices were shown to be up by 2.4 per cent, while output prices excluding food, beverages and petrol rose 2.5 per cent.

The largest price increase was felt by the material and fuel sector, which went up 9.7 per cent.

Mr Archer concluded that although today's results were surprisingly healthy, the Bank of England's ongoing inflation concerns meant that a further interest rate hike was likely before the end of the year.


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