By Maximilian Clarke
Input prices in the UK’s factories reached an annual inflation rate of 14.1% during October- the lowest since December 2010- whilst output prices remained at 5.7%.
With the more volatilely priced food, beverages and tobacco removed from the index, output prices stand at an annual gain of 3.4%, the Office for National Statistics’ latest Producer Prices Index (PPI) confirms.
Food price inflation — which the British Retail Consortium recently suggested has begun to wane- remains a key driver in prices inflation, standing at 9% per annum.
Chemical and electrical goods both added deflationary pressure, dropping by 0.4%.
Commenting on the results, David Kern- the British Chambers of Commerce's Chief Economist- says the reduction in industrial inflation will in turn drive a reduction in consumer prices inflation, offering some respite to households following years of above target inflation:
“The figures for October show a welcome slowdown in the pace of inflation for both output and input producer prices. In the year to October 2011, the input price index rose by 14.1%, a high figure in absolute terms, but still the lowest annual rate since December 2010. Slowing producer price inflation will help to ease the squeeze on businesses and consumers, and will contribute to lower consumer price inflation next year.
“The figures should reassure the MPC that they are right in persevering with an expansionary monetary policy in spite of the recent increase in consumer inflation above 5 percent. Since this surge in CPI inflation is likely to prove temporary, the MPC must maintain low interest rates throughout next year, and continue with an aggressive QE programme.
“These policies must be supplemented by measures to boost the flow of lending to businesses, and additional measures aimed at stimulating growth. The Autumn Statement later this month, provides the Chancellor with the opportunity to demonstrate his commitment to enable businesses to drive the recovery.”
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