By Max Clarke
Surging commodity prices have seen input price inflation top 18.5% for the year ending July, up from the 16.8% for the year ending June.
Input price inflation, measured by the government’s Office for National Statistics, is an average measure of the materials, fuels and goods bought by the UK’s factories, while output price, or ‘factory gate’ inflation refers to the price at which manufactured goods are sold.
Factory gate inflation edged up to 5.9% for the same period, as manufacturers delay price rises in order to retain the competitiveness of their goods.
“The latest producer price figures were largely as expected with both input and output price inflation accelerating again in the last month," said David Kern, Chief Economist at the British Chambers of Commerce. "The increase will worsen the relentless squeeze faced by businesses as well as consumers."
Much of the rise is the result of global surges in the price of oil- which rose by $10 a barrel over the past quarter ending July- as well as rising prices of food and other commodities. As a result they are unlikely to make UK exports less competitive. Recent economic crises in Italy and Spain have sent shockwaves through the world’s financial markets, sending commodity prices plummeting, which will likely see next month’s inflation index dip.
“Since the factors pushing up producer price inflation are largely international, it would be a mistake to respond to this situation by raising UK interest rates," continued Kern. "Such a move could trigger an economic setback, at a time when the government’s efforts to reduce the deficit are dampening demand. Any increases to interest rates must be postponed until the early months of 2012, and possibly later."
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