British factory gate inflation rose to its highest annual rate in more than two years in February, led by surging oil and food prices, official data showed on Friday. The figures were in line with expectations but will still worry the Bank of England given that consumer price inflation is already double its 2 percent target.
The Office for National Statistics said producer output prices rose 0.5 percent on the month for an annual rise of 5.3 percent - up from a revised annual 5.0 percent in January and the highest since October 2008. Input prices rose an annual 14.6 percent, also the highest rate since October 2008, suggesting that pipeline inflation pressures are continuing to build.
While some firms are managing to pass on the increased costs to consumers, others are having to take a hit to their profit margins. British pub operator JD Wetherspoon became the latest company to warn on the impact of food inflation, saying it would likely have to raise prices while Paul Sheffield, chief executive of construction firm Kier told Reuters soaring materials prices were set to hit builders hard.
"Where we're exposed to contracts with big elements of those materials then there are bound to be some pressures unless we can share this risk with our customers," Sheffield told Reuters. Worse may be to come. The sharp rise in oil prices triggered by escalating tensions in North Africa and the Middle East didn't happen until the end of February, so will not show up in the official figures until March.
Brent crude leapt to a two-year high above $119 a barrel on February 24, having stood at less than $90 a barrel in early December. "These February data won't have captured the bulk of the oil price rises so there is still more of that to come," said Ross Walker, UK economist at RBS.
Britain's central bank held interest rates at a record low of 0.5 percent on Thursday but policymakers are growing increasingly concerned that inflation pressures may become entrenched. Investors expect the BoE will raise rates by the middle of the year, possibly as early as May.
A 33.5 percent annual rise in oil input prices was the chief contributor to the rise in manufacturers' cost base. Food, imported metals and chemicals also exerted strong upward pressure. The BoE may draw some comfort from the fact that core output price inflation, which excludes volatile factors such as oil and food, eased on the year to 3.1 percent from 3.2 percent in January.
"At the margin this suggests that higher energy, commodity and food prices may still only be having a limited knock-on effect for now," said Howard Archer at Global Insight. BoE Governor Mervyn King has acknowledged the risk that surging oil prices could push inflation further above target. However he has also noted that higher energy costs will weigh on global growth which could have a downward impact on inflation over the longer term.
Comments
Comments are closed for this article.