Guardian UK: Factory figures raise prospect of 5% inflation

Factory figures raise prospect of 5% inflation
Angela Balakrishnan
guardian.co.uk, Monday August 11 2008


The prospect of 5% inflation loomed closer today after official figures showed that the price of goods leaving the factory gate last month surged to a record high.

The Office for National Statistics said that producer price inflation jumped to a higher-than-expected 10.2% on the year to July - the sharpest annual rise since the series began in 1986. The yearly rise in core output prices, which strips out erratic elements like raw materials and oil, also signalled further inflation pressures in coming months, with this rate hitting its highest point since 1981.

The Bank of England publishes its quarterly inflation report on Wednesday which will detail the monetary policy committee's (MPC) latest forecasts for inflation in the medium term. Figures on the government's favoured consumer prices measure of inflation (CPI) are due out tomorrow and are expected to leap further to over 4% on the back of a record oil-price and spiralling food prices. Inflation hit 3.8% last month, well above the Bank's 2% target.

Alan Clarke, economist at BNP, warned that today's rise in output prices posed a "significant risk" to consumer prices inflation over the coming year "even if energy prices begin to come down".

There were signs of relief, however, from manufacturer's input prices, which unexpectedly fell at their fastest monthly pace in one-and-a-half years due to the recent slide in the oil price. But they were still a third higher than a year ago. ......(more)

The complete piece is at: http://www.guardian.co.uk/business/2008/aug/11/inflation.interestrates