UK factory gate prices calm inflation fears

By Jamie Dunkley

Manufacturers kept output prices unchanged in October, reducing the year-on-year increase to 5.7pc, according to the Office of National Statistics, compared with a 6.3pc rise in September.
 

Input prices fell by a bigger-than-expected 0.8pc but were still 14.1pc higher on the year, albeit the lowest rate since December 2010. This compared to a 17.7pc rise last month and beat forecasts of an annual rate of 14.6pc. The slowdown in input price inflation was mainly due to a monthly fall in oil prices.
 

Howard Archer, economist at IHS Global Insight, added: "The October producer price data are lower than expected across the board indicating that weakened activity is causing manufacturers to become more circumspect in their pricing while a retreat in input prices is reducing the pressure on companies to raise their prices to protect their margins.
 

"The benign set of producer price data supports belief that consumer price inflation is headed down sharply over the coming months after likely peaking at 5.2pc in September, and that the Bank of England will enact further Quantitative Easing, most likely early in 2012, to try and boost the struggling economy."
 

Samuel Tombs, UK economist at Capital Economics, said the statistics were likely to mark the start of a "major downward trend in input price inflation" and also "underline the competitive pressures bearing down on manufacturers' pricing power".
 

The easing pipeline price pressures will come as welcome news for the Bank of England,which kept interest rates at their record lows and the target volume of asset purchases unchanged on Thursday.
 
The data comes ahead of next week's inflation figures, which are expected to show the consumer price index slipping from 5.2pc to 5.1pc, and the Bank of England's Inflation Report on Wednesday.
 
The so-called Producer Price Index (PPI) measures the price movement of goods bought and sold by UK manufacturers. The index is commonly referred to as 'factory gate prices' and is published on a monthly basis.
 
Input PPIs measure changes in the prices of materials and fuel bought by manufacturers for processing. These are not limited to just those materials used in the final product, but also include what is required by the company in its normal day to day running. In contrast, output PPIs demonstrate changes in the prices that manufacturers charge for goods at the time of order.
 Telegraph