UK output prices for all manufactured goods rose by 0.4% in September compared to the same month last year, according to the Office for National Statistics. This is also referred to as ‘factory gate inflation’ and analysts were very surprised by the figure. Only two months ago in July, the figures were showing a fall in price of 1.3% compared to the same month last year, so there has been a very fast turnaround in output prices.
The increase in price largely reflected price rises in petroleum and other manufactured products. But, the ‘narrow’ measure of output prices, which omits volatile items such as food and oil prices, actually rose by 1.4% on an annual basis. It is this latter figure which is particularly worrying, as it reflects ‘core’ inflation.
Output prices for UK manufactured goods have been rising at a surprising rate.
The UK has been hit in recent months by a continuing fall in the value of sterling, which is making imports more expensive. There have also been rises in commodity prices. Both of these taken together are putting pressure on manufacturers to raise their output prices.
The upshot of this is that it looks as though UK inflation is going to be ‘stickier’ than in many other advanced economies. Although the general consensus is that the Bank of England will keep interest rates at 0.5% for the foreseeable future, they may have to think again if these output figures follow through into retail inflation. It will be interesting to see the September retail inflation figures when they are released this week.
In the meantime, the fall in sterling does have a silver lining. Latest figures show that the UK trade deficit fell from £2.6bn in July down to £2.0bn, while the deficit on the trade in goods fell from £6.4bn to £6.2bn, which was the smallest deficit since June 2006. Our exporters are obviously being helped by being able to offer lower export prices as a result of sterling’s weakness.
Tags: Balance of Trade, factory gate prices. sterling, output inflation
