Output inflation at 21-month high

UNDERLYING factory gate inflation rose to a 21-month high in September, but the cost of industry's fuel and raw materials dropped more sharply than in any month for more than seven years, figures from the Central Statistical Office showed yesterday, writes Robert Chote.

The headline rate of factory gate inflation - the annual change in the prices charged by manufacturers for their output - dropped from 4.3 to 4.2 per cent in September. Manufacturers' output prices were unchanged for a second successive month, having fallen by 0.1 per cent in September last year.

Factory gate inflation has risen steadily from around 3 per cent since the pound was devalued last autumn, but it has not surged strongly enough to suggest severe upward pressure on prices in the shops. Excluding food, drink, tobacco and petrol prices - all of which are affected by Budget excise duty changes - factory gate prices rose by 0.3 per cent in September, after adjustment for normal seasonal changes. This took the annual rate to 3 per cent, its highest since the end of 1991.

Fuel and raw material prices fell by a seasonally adjusted 2 per cent in September, cutting the annual rate of increase from 6.3 per cent to an 11-month low of 3.5 per cent. The fall was in large part the result of a sharp rise in the pound against the dollar this year. Home-produced food manufacturing materials also fell on the month.

The Treasury said the fall in input prices suggested that inflation remained under control. 'An expected recovery in sterling should help to contain cost pressures over the next six months,' said Robert Lind, economist at UBS.