Oil price rise ‘may push up inflation rate’

By Scott Reid
Published on Saturday 11 February 2012 00:00

A SPIKE in oil prices remains a concern and could fuel a renewed hike in the cost of goods leaving UK factories, analysts yesterday warned.

Official figures showed that so-called output price inflation fell to 4.1 per cent in the year to January, down from 4.8 per cent in December and the lowest annual rate since November 2010.

However, output prices ticked up 0.5 per cent during the month as prices of alcohol, fuel and clothes rose. Economists had expected only a 0.1 per cent monthly rise and an annual inflation rate of 3.7 per cent.

The Bank of England believes that consumer inflation will tumble early this year from the current rate of 4.2 per cent and dip below its 2 per cent target towards the end of 2012.

Some policymakers have warned that a fresh spike in oil could keep overall inflation up and they will be alarmed that a rise in crude prices was the main driver behind an increase in producer input prices last month.

IHS Global Insight economist Howard Archer said the firming in oil prices, with a barrel of Brent pushing above $118, was “an area for concern on the input prices front”.

But he noted that the annual rate of input cost inflation had eased to a 26-month low of 7 per cent from 8.7 per cent in December.

BNP Paribas economist David Tinsley said: “There’s probably a bit of upside news here as far as consumer price inflation figures are concerned. In particular, the rise in alcohol and petrol prices may temper the monthly decline in overall prices in January.”