Output prices rise set to hit consumers

Published on Friday 9 October 2009 21:05

CONSUMERS face a new year inflation headache after a shock rise in the prices of goods leaving UK factories.

Official figures, published yesterday, showed output prices rising 0.5 per cent during September, the first hike in five months and taking the annual rate of factory gate inflation to 0.4 per cent.

Analysts had been expecting a year-on-year fall of 0.1 per cent.

While most sectors had an upward impact on output prices, the Office for National Statistics said the biggest effect came from petroleum product prices, which were driven up by a rise in duty at the start of September.

Economists said the stronger data suggested manufacturers may have been trying to take advantage of improving economic conditions to try and improve their margins.

Those price pressures could start feeding through to higher prices in the shops, analysts warned.

George Buckley, chief UK economist at Deutsche Bank, said: "You could see inflation start to pick up again in the early part of next year."

The most recent inflation figures showed the Consumer Prices Index (CPI) measure dropping to an annual rate of 1.6 per cent in August from 1.8 per cent in July. However, the Retail Prices Index (RPI), which factors in mortgage interest payments and housing costs, edged up to -1.3 per cent from -1.4 per cent.

Fresh inflation data for September is due out next week.

Howard Archer, chief UK economist at forecasting group IHS Global Insight, said: "The producer price data is likely to reinforce the Bank of England's belief that consumer price inflation will be higher than previously expected in the near term and it could modestly dilute the chances of further quantitative easing being enacted in November."

Meanwhile, figures yesterday showed the UK's trade gap in goods with the rest of the world shrinking from 6.4 billion to 6.2bn in August – the smallest deficit in three years.

Vicky Redwood of Capital Economics said: "The tentative global recovery may finally be allowing UK exporters to make the most of the previous drop in the pound."

Global Insight's Archer said the improvement boosted hopes that the economy returned to growth in the third quarter.

"We expect net trade to have made a modest positive contribution to UK GDP in Q3," he added.