UK producer prices dragged lower by oil prices

Date: Friday 08 Jun 2012

UK factory gate inflation fell 0.2% month-on-month but rose at a 2.8% year-on-year rate, according to the latest data out from the Office for National Statistics (ONS), after increasing at a 3.2% clip in April.

That is its lowest rate since November 2009.

The consensus estimate had been for an increase of 0.1% month-on-month (3.2% year-on-year).

The main contribution to the fall in the price index came from petroleum products (-3.0% month-on-month).

Excluding food, beverages, tobacco & petroleum output prices increased by 0.0% month-on-month (2.1% year-on-year), versus a rise of 2.3% last month.

Input prices meantime dropped by 2.5% month-on-month (0.1% year-on-year), the largest decrease since December 2008.

The consensus estimate was for a 1.3% month-on-month (1.0% year-on-year) retreat.

Commenting on today’s data economists at Barclays are saying that, “the renewed downward trend in input costs over recent months appears to be mainly driven by a strong fall in oil prices (during May and April) and if continued during June this could bring input price inflation into negative territory for the first time in almost three years.

“Output price inflation has been easing at a slower pace, with the headline measure at 2.8% y/y and core output price inflation at 2.1%. While the match between producer prices and consumer goods prices is not perfect, they share a common trend and inflation on both measures has moderated in recent months (see chart). Nevertheless, we do not think the recent downward trend in producer price pressures will be sufficient to bring CPI inflation back to the BoE's target of 2.0% by end of 2012.”

AB

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