Factory gate inflation stays unchanged in June

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FACTORY gate inflation remains subdued because falling labour costs are offsetting the boost to prices from last year's devaluation of the pound, official figures showed yesterday, writes Robert Chote.

The prices received by manufacturers for their output rose by 0.1 per cent in June over May, according to the Central Statistical Office.

This left the annual rate of factory gate inflation unchanged on the month at 4 per cent, a rate not exceeded since spring last year. This was was in line with City forecasts.

Don Smith, economist at Midland Global Markets, said CBI surveys of firms' price expectations suggested that the rate would rise above 4.25 per cent by the year-end before falling again. 'Given the size of sterling's devaluation, this is a very good figure,' he added.

Excluding volatile prices in the food, drink and tobacco industries, factory gate prices increased by 0.3 per cent in June, leaving inflation on this measure at 2.6 per cent for the fifth successive month.

'The flat picture from output price inflation suggests that underlying retail price inflation also will remain moderate,' said Michael Saunders, of Salomon Brothers.

The prices of fuel and raw materials fell by 0.4 per cent in June, reflecting the fall in home-produced food manufacturing materials usually seen at this time of year.

The annual rate of input price inflation rose to a three-month high of 7.8 per cent, with analysts arguing that input prices now reflect all the rise in import prices resulting from devaluation.

A survey by Incomes Data Services suggests that low pay increases may not offset higher input costs much longer. For example, Halifax Building Society is offering rises of up to 8.25 per cent.

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