Surge in factory gate prices adds to inflationary pressures

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The Independent Online

The spectre of higher inflation loomed yesterday, after official figures showed manufacturers bolstered their profit margins last month by raising prices and house price inflation continued apace.

The spectre of higher inflation loomed yesterday, after official figures showed manufacturers bolstered their profit margins last month by raising prices and house price inflation continued apace.

The underlying cost of goods leaving factory gates rose at its fastest pace in nearly nine years in July, taking the annual rate of factory-price inflation to 1.6 per cent. The figures, which economists said presaged new inflationary pressures, came as data from the Government's Land Registry showed average house prices in England and Wales accelerated in the second quarter, rising almost 17 per cent. Separately, the Office of the Deputy Prime Minister said the annual rate of house price inflation was 13.9 per cent in June, which was faster than expected.

Core output prices, which exclude food, drink, tobacco and petroleum, rose 0.3 per cent in July, the biggest monthly gain since September 1995, the Office for National Statistics said. The sharp increase comes days after the Confederation of British Industry revealed that manufacturers had raised prices for the first time in eight years during the past three months.

Howard Archer, at Global Insight, said: "[This] will be of concern to the Bank of England as it suggests that manufacturers are increasingly passing on their higher costs." John Butler, at HSBC, said: "The MPC may be concerned that retailers try to push through these higher costs."

The ONS attributed the rise in core factory-gate inflation to soaring scrap metal prices, which rose 0.6 per cent on the month. But a 0.9 per cent fall in petroleum product prices kept the overall output prices rise at just 0.1 per cent last month. That effect is unlikely to last, however, as oil prices head back to record levels.

The historical housing data confirms figures from Halifax and Nationwide, that house price inflation is accelerating, despite the Bank's attempts to cool the market. The MPC has raised interest rates by 125 basis points between November and August, taking the base rate to 4.75 per cent.

The ODPM's house-price index, which aims to clarify any discrepancies between other data, showed inflation was strongest in England, rising from 11 per cent in May to 13.1 per cent in June. The Land Registry said growth in the three months to June had been strongest in Middlesbrough, where annual house prices rose 59 per cent. Welsh house prices rose faster than any other region, with the average property worth 27.6 per cent more than during the previous year, while the weakest gain, of 9.7 per cent, came in the South-east.

Separately, a survey of chartered accountants will today suggest that economic growth peaked in the second quarter. Business confidence has slumped, according to the report from the Institute of Chartered Accountants and Alliance & Leicester, with the IT sector alone expecting strong growth. Meanwhile, the British Retail Consortium said the series of rate rises were taking their toll on the high street, with underlying sales in July rising just 1.8 per cent.

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