By Max Clarke

Data published today by the ONS show annual 'output price' inflation from December 2009-2010 stood at 4.2%, while 'input prices' for the same period rose by 12.5%.

Commenting on the producer price rises, David Kern, Chief Economist at the British Chambers of Commerce (BCC), said:

“These figures are higher than expected, largely because of the recent sharp increases in food, energy and other commodity prices. They reinforce our expectations that during the next few months annual consumer price inflation will rise towards four per cent and possibly higher. This will create an uncomfortable background for the MPC, and will add to the pressure it is now facing for an early increase in interest rates.

“Our view remains that an increase in rates, at a time when fiscal policy is being tightened and pressures on businesses and individuals is increasing, would be a mistake and should be avoided. The factors contributing to inflation at present are adding to the squeeze on disposable incomes and on profit margins.

“While interest rates will have to increase later this year, it is important for the MPC to wait until the initial impact of the austerity measures have been absorbed. Premature action risks derailing the recovery.”