Factory gate prices rise

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The Independent Online

Consumers were being braced for more pain today after a report revealed that factory gate prices rose at their fastest rate since October 2008.

Manufacturers increased their prices by 0.9% between February and March, leaving them 5.4% higher than a year ago, as they passed on the soaring cost of oil, food and other commodity prices, according to the Office for National Statistics.

This led to record annual prices hikes for paper products, clothing, textiles and leather in March, while food was up 7.4% year-on-year in its biggest hike since January 2009.

The higher-than-expected rate of factory gate price rises was announced the day after the Bank of England resisted pressure to hike interest rates from its record low of 0.5% in a bid to beat down inflation.

Today, oil prices hit fresh two-and-a-half-year highs after fierce fighting in Libya damaged the country's largest oil field.

Brent crude was up 1.4% to 124.2 US dollars a barrel as motorists were warned that the price of petrol at the pump is likely to rise and is set to further squeeze consumers' disposable incomes.

Manufacturers are being forced to increase their prices to their customers after their input costs rose 14.6% year-on-year, although this is slightly down on February's record high of 14.9%.

Their input prices rose 3.7% between February and March, mainly as a result of the rising cost of oil, which rose 10% in the month.

Samuel Tombs, UK economist at Capital Economics, said: "March's producer prices figures show that cost pressures in the manufacturing sector are continuing to build.

"Given the intensity of these costs pressures, then, it's not surprising that manufacturers are forcing through chunky price hikes.

"Oil prices are already another 8% or so higher this month, so further sharp rises in input prices seem unavoidable."

The European Central Bank yesterday increased its interest rate to 1.25% from 1% as it took a hard-line on inflation, which rose to 2.6% in the Eurozone - significantly less than the 4.4% rate in the UK.

Howard Archer, chief economist at IHS Global Insight, said today's figures are "simply nasty" and "will do little for the Bank of England's piece of mind".

He added: "The Bank of England will be desperately hoping that input costs will soon fall back and that manufacturers' ability to raise their prices further will be limited by significant excess capacity."