Factory gate inflation climbing

Factory gate inflation rose more than expected in December as the recent hike in commodity prices forced manufacturers to bump up their charges on goods.

The Office for National Statistics announced that last month producer prices increase 4.2%, which turns out to be the highest levels as of April. Many experts had predicted a mere 3.9% increase.

Howard Archer, IHS Global Insight’s chief UK and European Economist, said, “This news will not set well with the Bank of England.”

This number gives some idea as to the size of inflation, and is based on the manufacturers’ bill for goods. Archer continued, “This jump is compounding BoE’s turmoil and stressing them to make an increase in interest rates.”

Examining the rate of increase on a monthly basis reveals that it was 0.1% above what was predicted.

The cost of fuels and materials that manufacturers spend, known as input prices, increased 12.5% in December, as opposed to 9.2% for the month before. Here the change is due to the adjustments for fuel and foods.

“Archer revealed, “Because of higher input costs, many companies are quite interested in getting their piece of the pie from the benefits of the bigger activity of manufacturing from 2010. So they’ve done this by jacking up their own prices and gaining a bigger margin.”

Archer also pointed out that whatever decision BoE takes, “it relies on the presence of proof that higher inflation rates are resonating into the wage growth.