Factory gate prices up by 5.9%

FACTORY gate prices rose at their fastest annual rate in nearly three years last month as input costs for oil and food continued to soar, figures yesterday revealed.

The Office for National Statistics (ONS) said producer output prices increased 5.9 per cent in July compared to a year earlier, above forecasts for an annual rise of 5.8 per cent. Month-on-month, prices for all manufactured products rose 0.2 per cent between June and July.

The price pressures will provide a fresh headache for the Bank of England which is weighing up whether to loosen monetary policy further to boost a faltering UK economy.

Yesterday's data also showed that input prices were 18.5 per cent higher on the year, slightly below forecasts, although the annual rate for June has been revised down to 16.8 per cent from 17 per cent.

Economists had expected persistently high commodity prices, such as food ingredients and cotton, to have pushed up input costs.

Business leaders said higher producer price inflation would tighten the squeeze on companies already struggling with weaker demand from the United States and major European markets.

David Kern, chief economist at the British Chambers of Commerce, said: "The latest producer price figures were largely as expected with both input and output price inflation accelerating again in the last month.

"The increase will worsen the relentless squeeze faced by businesses as well as consumers. Since the factors pushing up producer price inflation are largely international, it would be a mistake to respond to this situation by raising UK interest rates."

The ONS said companies' costs for oil were 45.4 percent higher than in July 2010 and input prices for imported food were up 13.8 percent, the strongest annual increase since March 2009.