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Continued rise in UK producer prices

Output price inflation rose to 4.2% in December 2010 according to the Office for National Statistics.  This is sometimes referred to as ‘factory gate’ annual inflation, and measures the output prices that manufacturers sell their products at. The rise on the month was 0.5% which is considered quite significant.

At the same time, input price annual inflation rose by 12.5% in the year to December, compared to an annual rise of 9.2% in November. This measures the prices that manufacturers pay for their materials and fuels, and is quite a startling increase. However, it is mainly due to a 12.8% increase in petrol prices.

Producer Prices Indices Source: ONS

However, what happens to manufacturers as they face these price rises, will have a knock-on effect on the products that eventually find their way into our shops. And, given the fact that the Consumer Prices Index is already standing at 3.3%, way above the 2.0% target set by the government, we can expect consumer prices to go even higher.

But, the Monetary Policy Committee would have seen these figures at yesterday’s meeting when they decided to keep interest rates on hold at 0.5% for the 22nd consecutive month. They have said repeatedly that current price rises are temporary and will start to fall again, but there is no sign of it at the moment.

Further pressure on input prices and factory gate inflation, may cause them to change their mind at their next meeting.

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Posted in Inflation, Interest rates, Manufacturing, Monetary Policy Committee

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