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Surging Energy Cost Adds To Inflation Pressure

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Inflation worries intensified yesterday after official data showed the cost of goods leaving British factories had hit a 28-month high.
Surging oil and food prices pushed producer output prices up by 0.5 per cent last month, giving an annual rise of 5.3 per cent, up from a revised 5 per cent in January and the highest rate since October 2008.

Input prices also rose, hitting an annual rate of 14.6 per cent, suggesting that pipeline inflation pressures are continuing to build.

While the figures were broadly in line with what economists had been expecting, they are certain to worry the Bank of England at a time when consumer price inflation is already double its 2 per cent target. On Thursday, the bank’s monetary policy committee (MPC) voted to hold interest rates at their historic low of 0.5 per cent though most commentators are pencilling in a rise by May.

A 33.5 per cent annual jump 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.

On the month, crude oil contributed more than three-quarters of the total rise in firms’ input prices.


Bank of England governor Mervyn King has admitted that surging oil prices could push inflation further above target, as higher fuel costs feed through to the high street. 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.