Factory gate inflation rises

City A.M. Reporter
Factory gate inflation rose faster than expected in December to its highest annual rate since April, driven by a sharp rise in the price of crude oil and food input costs, official data showed.

The news is likely to concern the Bank of England as consumer price inflation is already more than a percentage point above its two per cent target and is forecast to rise towards 4 percent in the coming months.

The Office for National Statistics said producer output prices rose 4.2 per cent in December, slightly above forecasts for an annual rise of 3.9 per cent. On the month, output prices were up 0.5 percent, versus a 0.4 percent forecast.

December input prices were 12.5 per cent higher on the year - also the highest annual rate since April – compared with a 9.2 per cent annual rise in November and against forecasts for an annual rate of 10.4 per cent.

Economists had expected some acceleration in input costs due to higher oil and gas prices and the weaker pound.

A slowdown in the growth of labour costs had been expected to keep output prices more steady.

Stripping out input costs for food and petroleum industries, the annual rate of input price inflation in December rose to 8.8 percent from 7.5 percent on a seasonally-adjusted basis.

The rise in the cost of crude oil over the year contributed almost half of the annual rise in input cost inflation, with increases in the cost of home produced food and imported metals also playing a significant role.

The cost of crude oil inputs is 26.2 per cent higher than a year ago, its highest annual rise since May 2010.

This is having a knock-on impact on fuel inputs, which are rising at their fastest annual pace since May 2009.

The cost of home-produced food materials is 11.3 per cent higher on the year – its biggest annual rise since 2008.