Oil pushes up factory gate prices

Rising oil costs pushed up factory gate prices last month, official figures showed today, but economists said overall inflation is still set to ease.

The prices charged by manufacturers increased by 0.6% between February and March, the Office for National Statistics (ONS) said, as petroleum products rose 2.4% on the month.

However, core output prices - which exclude volatile items including food, beverages, tobacco and petroleum - edged only 0.1% higher, suggesting manufacturers are pricing competitively to attract business.

Samuel Tombs, UK economist at Capital Economics, said: "Today's UK producer prices figures confirm that cost pressures in the manufacturing sector were strong in March, although they still suggest that consumer price inflation is on course to fall to a low rate later this year."

The consumer prices index (CPI) inflation was 3.4% in February and is forecast by brokers at Investec to remain unchanged for March as higher-than-expected oil prices apply upward pressure.

The rising level of crude oil also pushed up the prices manufacturers paid for their materials - which rose 1.9% month-on-month.

However, again, input prices excluding food, beverages, tobacco and petroleum industries fell 0.1%.

High inflation was one of the most aggravating factors weighing on the economy last year as consumers, also dogged by sluggish wage growth, reined in spending.

The Bank of England's Monetary Policy Committee (MPC) has forecast inflation to fall below the 2% target by 2013, but some economists have raised concerns that this will not happen as quickly as thought.

Oil prices have been higher than expected this year as tensions between the West and Iran escalate, although recent global uncertainty has seen them pull back, with Brent crude in London at 121 US dollars a barrel, compared to 128 US dollars last month.

David Kern, chief economist at the British Chambers of Commerce (BCC), said: "These figures show a welcome decline in the pace of producer price inflation, which will help to reduce the current squeeze on businesses and consumers.

"However, the fall was not as sharp as many analysts were expecting. On this basis, we expect the downward trend in inflation to continue throughout the year, but at a slower pace than the MPC predicted."

PA