Price data lifts rate pressure

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The Independent Online
BY DIANE COYLE

Economics Correspondent

There were modest increases last month in prices charged at the factory gate and in prices paid by industry for materials. The better-than-expected figures published yesterday lifted some of the pressure for higher base rates, although analysts said the pound's weakness would add to inflationary concerns in coming months.

Prices paid for inputs rose by only 0.1 per cent in February, after a 1.5 per cent jump the previous month. The annual rate of increase fell from a whopping 12.1 per cent in January to 11.4 per cent.

There were big increases in the cost of foods and chemicals. Prices of some types of equipment, such as electrical and optical equipment and transport goods, have started to climb for the first time. However, energy and metals costs dropped.

Factory gate prices rose 0.3 per cent, reaching a level 3.6 per cent higher than a year earlier. ``Core'' prices, excluding food, drink and tobacco, rose 3.7 per cent in the year to February - the highest rate since September 1991.

The biggest price rises came in rubber and plastics and basic metals, two sectors that have suffered the most from cost increases. Prices charged for pulp and paper and machinery also climbed, but food prices were unchanged.

Most City analysts thought the producer price figures, combined with recent evidence that the pace of output growth has slowed, reduced the risk of an imminent rise in base rates. However, many cautioned that the fall in sterling could trigger Eddie George, the Governor of the Bank of England, into action even though he and Kenneth Clarke, the Chancellor, had not raised rates after their meeting last Wednesday.

Tim Fox, an economist at Credit Suisse, said: ``A weaker pound and strong exports will add to the determination of manufacturers to pass on cost pressures.'' David Walton, senior economist at Goldman Sachs, said that even though a weak dollar would help trim the rise in price of commodities priced in dollars, the pound's fall of about 4 per cent since the beginning of the year could add 0.4 per cent to inflation if it is not reversed. He added: ``The Bank of England certainly will not have to wait until the next monthly meeting to raise base rates if there is a sterling crisis.''

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