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Producer price inflation hits 14-month high

Date: Friday 05 Mar 2010

Producer price inflation hits 14-month high

Producer price inflation reached a 14-month high in February, figures from the Office of National Statistics (ONS) showed.

The output price index of manufactured products rose 4.1% in the year to February, up from a rise of 3.8% in the year to January and the highest rate since December 2008.

Chemical products tobacco and alcohol products and other manufactured items were largely responsible for the gain, the ONS said.

Petroleum products showed a 20% year on year increase while tobacco and alcohol goods rose 3.8%. Electrical and optical goods showed a 5.1% increase over the 12 month period.

The core producer price index, which strips out the effects of food, beverages, tobacco and petroleum, also rose 0.3% in February after climbing 0.4% in January. The annual gain broadened to 2.9% from 2.6% in January.

However input prices rose at a slightly lower rate, climbing by 6.9% in the year to February, compared with the 7.7% rise seen in January.

Howard Archer, chief UK and European economist at the analyst group IHS Global Insight, said producer price inflation may just be a temporary trend.

‘Overall, the evidence suggests that manufacturers are trying to take advantage of some recent limited improvement in activity to push through price increases and support their margins in the face of recently rising input costs,’ he said.

‘Even so, manufacturers have only been able to pass on some of their higher costs with the result that their margins have been squeezed significantly recently.

‘We suspect that manufacturers will find it very difficult to make significant price rises stick over the coming months given substantial excess capacity and elevated competition amid still challenging conditions.’

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