Factory output prices rise

Published on Tuesday 14 February 2006 01:28

FEARS that rising energy prices could be fuelling inflation were reignited yesterday by official figures showing factory output prices increased for the first time in three months, after a sharp jump in raw-material costs.

The Office for National Statistics (ONS) reported that manufactures' input prices surged 1.8 per cent in January, meaning raw material costs were now 15.4 per cent higher than they were a year ago.

But more worryingly for the Bank of England's rate-setting monetary policy committee (MPC) - charged with keeping inflation at the government's 2 per cent target - there was evidence that manufacturers had started passing on their higher costs to consumers. Prices at the factory gate increased 0.4 per cent in January after three straight months of falls, according to ONS.

The MPC has kept borrowing costs on hold at 4.5 per cent since August last year, despite five consecutive quarters of below-trend growth, because of fears that soaring fuel costs might trigger an inflationary spiral with wages and prices both rising.

Analysts said the figures, which are the first in a week of important economic indicators, add weight to the view that the BoE is unlikely to cut interest rates in the coming months, or at least while it makes sure that underlying inflationary pressures are not building up.

Today the statistics office will release the latest inflation figures and tomorrow, rate expectations could be reshaped again with the publication of the BoE's quarterly inflation report.