By Max Clarke
Input prices inflation- referring to the rising costs of raw materials bought by manufacturers- has risen yet again, reaching 17% over the year ending in June.
This in turn has pushed up the prices of manufactured goods which has seen output prices, or 'factory gate' inflation, reach 5.7%.
“These figures were worse than expected with both input and output producer price inflation accelerating in the last month, “ commented David Kern, Chief Economist at the British Chambers of Commerce. “Although the results are not entirely surprising, they will complicate the MPC’s job in the short term.
Much of the rise has been driven by surges in the price of commodities, notably oil and other more volatile raw materials. By removing such items from the inflation index, a ‘narrow’ measure of inflation is reached, which, for output prices, falls to 12.8%.
Persistent inflation is increasing the pressure on the Bank of England’s Monetary Policy Committee to raise interest rates. With the UK’s negligible GDP growth, such a measure would likely cause lasting harm to the UK recovery.
“The rise in inflation is uncomfortable, “ continued Kern, ”but largely due to factors that are outside the committee’s control. Responding to this increase in inflation by raising interest rates would not reduce prices in the short term and could risk triggering a major setback. “
“The government’s deficit-cutting programme is already dampening demand and adding significantly to the pressures facing businesses and individuals. Our view remains that interest rate increases must be postponed at least until the fourth quarter of the year. On its part, the government must strengthen its efforts to stimulate growth and make every effort to ease regulations and other burdens facing wealth-creating businesses.”
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