By Max Clarke

Output price, or ‘factory gate’ inflation climbed still higher during April, rising to and annual rate of 5.3%; while input price inflation jumped to 17.6% in the same period, compared to an annual rise for the year ending March 2011 of 14.8%.

“The producer prices for April are higher than expected, with raw material prices increasing sharply in particular. With factory gate inflation at 5.3%, the pressures facing businesses will intensify and many will see their cashflows squeezed,” commented the British Chambers of Commerce’s chief economist, David Kern.

Input prices refer to goods bought by manufacturers while output, ‘factory gate’, refers to the price of finished goods sold by manufacturers. Both are charted by the Office for National Statistics’ Producer Prices Indices monitor.

Much of the input price rises have been driven by the escalating cost of crude oil, while factory gate inflation has in part been fuelled by alcohol and tobacco.

By excluding prices of more volatile products, namely alcohol, tobacco, food and petroleum, a ‘narrow index, is calculated for factory gate prices. The narrow index for the year ending April stood at 3.4%- demonstrating the skewing effect of recent global hikes in petroleum and food in particular.

Kern continued: “The Monetary Policy Committee will find these figures uncomfortable, but they do not justify any change in interest rates in the short-term. Over the past two days we have seen a sharp decline in the price of oil, gas and other commodities. This has created hopes that the huge increases in commodity prices seen over the past year could slow, and even reverse.

“As the Government continues its programme to reduce the deficit, it should make every effort to ease the regulatory and other burdens facing business, making it easier for them to cope with the current international pressures while driving the UK recovery.”

Topics