Rise in industry's costs is sharpest for 16 years

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The Independent Online
Industry's fuel and raw material costs rose more sharply in November than in any month for 16 years, as the slide in the pound since Black Wednesday pushed up import prices and threatened upward pressure on inflation, writes Robert Chote.

The jump in input prices was twice as large as City forecasts. Treasury economists were also privately surprised by the size of the increase; they are uncertain whether the effect of devaluation is going to be larger than they first expected or merely that it will feed through more quickly.

Fuel and raw material costs rose by 2.4 per cent between October and November, adjusting for normal seasonal effects, according to the Central Statistical Office.

As a result, the annual rate of input price inflation almost doubled in November to 4.1 per cent, the highest in almost three years.

The prices of nearly two-thirds of industry's inputs are affected by devaluation, with 60 per cent imported and 6 per cent - like oil - priced in US dollars. The pound has fallen by over 15 per cent since September, making imports more expensive in sterling terms.

Academic studies suggest it will be at least two months before raw material rises feed through to prices that manufacturers charge. It is also unclear how much of the rise in costs will be absorbed by profit margins and how much passed to retailers and consumers.

Manufacturing output price inflation was static at 3.3 per cent in November. Excluding volatile food, drink and tobacco prices, it fell for the fifth successive month to 2.4 per cent. This is the lowest rate since April 1969 and reflects a seasonally adjusted rise in prices of 0.1 per cent on the month.

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