Factory gate price rises fuel fears of spike in inflation

The cost of goods leaving British factories rose at their fastest annual rate for nearly three years last month, adding to inflationary worries at the Bank of England.

Manufacturers increased their output prices by 6.3 per cent year-on-year in September, compared with a 6 per cent rise the previous month, according to figures released yesterday by the Office for National Statistics.

The rate of producer output price inflation was just above the 6.2 per cent pencilled in by economists and is the highest reading since October 2008.

Rising food and fuel costs were the main drivers of the increase, although the “core” measure of producer output price inflation which excludes these factors also hit its highest rate in more than a year at 3.8 per cent.

Central bank governor Mervyn King said this week that he expects consumer price inflation to hit 5 per cent soon, up from its most recent reading of 4.5 per cent, but then to fall rapidly in 2012, as the effect of past sales tax increases and rises in the price of oil fade away.

Economists said the upward pressure on factory gate prices was unlikely to be sustained in the near term, particularly as oil costs have since come off the boil.

Samuel Tombs at Capital Economics said: “September’s pick-up in both input and output price inflation seems unlikely to be sustained in future months and hence has done little to change the outlook for consumer price inflation.”

Howard Archer at IHS Global Insight added: “Despite the rise in producer prices, there are signs that manufacturers’ pricing power is being diluted.”