Oil prices sends manufacturing costs up

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Manufacturing input costs are rising at the fastest annual rate for a year due to higher oil prices, official figures showed today.

Crude oil prices were up 30 per cent in the year to November and rose 2.1 per cent compared with the previous month, the Office for National Statistics (ONS) said.

This pushed manufacturers' input prices up 4 per cent year-on-year, putting the squeeze on firms as factory gate prices rose by a lesser 2.9 per cent.

But experts played down the dangers of rising inflation with manufacturers' pricing power still muted due to lower demand in the recession.

"We expect this will remain the case given substantial excess capacity and elevated competition amid still difficult conditions," IHS Global Insight's Howard Archer said.

Input prices increased by a lower than expected 0.1 per cent in the month to November despite the rise in oil costs as prices of other products such as imported parts and equipment showed falls.

Input costs are on the way up as the impact of the steady rise in oil prices in the months leading up to July 2008's record begins to drop out of this year's figures for comparison purposes.

Crude prices declined steeply in the second half of last year, so relatively unchanged prices or modest rises this time around creates an inflationary effect in the figures.

Mr Archer said today's data fitted with the Bank of England's forecasts of a spike in Consumer Prices Index increases early next year to around 3 per cent before falling back later.

"(The figures) do little to alter the view that interest rates will stay down at 0.5 per cent until at least late 2010 and very possibly beyond," he added.