Factory gate inflation falls but public still wary on prices

By PETER RANSCOMBE
Published on 09/06/2012 00:00

Hard-pressed businesses and households were offered fresh hope yesterday after official figures suggested inflation will continue to ease.

Data from the Office for National Statistics (ONS) revealed a 0.2 per cent fall between April and May in the prices that manufacturers charge, leading to the slowest annual rate of growth since November 2009. The prices that manufacturers pay for goods rose by just 0.1 per cent in the year to May – its lowest rate since September 2009 – as oil costs fell.

The ONS’s producer price index, a closely-watched indicator of inflation, provided further hope that consumer price index (CPI) inflation, which was at 3 per cent in April, will continue to fall from its September peak of 5.2 per cent. This would help to ease the strain on households where take-home pay has failed to keep up with soaring prices, and on businesses that are struggling to pass rising costs on to their customers.

The improving news on inflation comes despite a Bank of England-backed survey showing that the public last month expected inflation of 3.7 per cent over the coming year, up from forecasts of 3.5 per cent in the previous quarter.

Howard Archer, chief economist at IHS Global Insight, said: “The May producer price data are benign and boost hopes that consumer price inflation will head down appreciably further over the coming months.

“The May Bank of England/GfK survey showed a rise back up in the public’s inflation expectations after they had dipped in February. This was likely a significant factor in the monetary policy committee holding off from further quantitative easing at its June meeting.”

David Kern, chief economist at the British Chambers of Commerce, added: “We expect consumer price inflation to continue to fall. This will ease the pressures facing businesses and provide a boost to consumer spending.”