Manufacturers' input costs in December were 5.2 per cent higher than a year earlier, the Central Statistical Office said yesterday. This was up from 4.3 per cent in November, but lower than the 6 per cent expected in the City.
City economists fear that higher input prices will feed through to prices in the shops in the coming months and could push underlying inflation above the Chancellor's 4 per cent target ceiling.
Input prices rose by 0.1 per cent between November and December, adjusting for normal seasonal changes, following rises of 2.5 and 2.2 per cent in the two preceding months. 'This levelling off may indicate that most of the effect of sterling's depreciation on import prices has now fed through,' said Anthony Nelson, Economic Secretary to the Treasury.
There is little sign that higher input costs have yet fed through to manufacturers' output prices. Excluding volatile food, drink and tobacco prices, output prices rose by 2.4 per cent in the year to December, unchanged on November.
The annual rate of increase in all output prices rose to a six- month high of 3.5 per cent in December, up from 3.3 per cent in the preceding month.
Chris Dillow, of Nomura, said the unexpectedly good news on producer prices owed much to lower petrol prices and a firmer pound, and was likely to be temporary. Ruth Lea, of Mitsubishi Bank, said the Government was unlikely to reverse its 'go for growth' policy if inflation exceeded its target while unemployment was still rising.
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