Output prices at four-year high

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Economics Editor

Factory gate inflation rose to its highest for more than four years in October, but the underlying outlook for inflation in the manufacturing sector brightened. Core prices charged by manufacturing rose by the smallest amount for more than a year and the prices for materials and fuel purchased by manufacturing fell for the first time since January 1994.

Despite the rise in output prices to 4.6 per cent, its highest since August 1991, the Treasury said there were clear signs that pressures in the pipeline from input price inflation were subsiding. Spokesmen also drew attention to the fact that the quarter-on-quarter annualised rate of inflation in core manufacturing output had fallen from 4.8 to 4 per cent.

But Andrew Smith, Shadow Chief Secretary, said the factory gate prices figures should be taken as a serious warning on inflation as the Chancellor shaped his Budget.

The markets reacted favourably to the figures, which many analysts saw as encouraging. Michael Saunders, UK economist at Salomon Brothers, said: "Weaker output price data are a key step on the road to lower base rates."

Although overall factory gate inflation rose from 4.5 to 4.6 per cent in October, the core index, which excludes food, beverages, tobacco and petroleum fell from 5 to 4.8 per cent. There was even more encouraging news with input prices. The fall in seasonally adjusted input prices of 0.3 per cent, the first for almost two years, brought the annual rate down from a revised 9.2 to 7.8 per cent.