Price Inflation: Trend or Blip?

Lest I be accused of only posting the news which suits my argument, and ignoring couter evidence, I am including today this piece about UK producer prices. They're on the rise. The difficulty is extracting the Iraq war blip from the trend. My own feeling is that this is a temporary phenomenon, and that come the autumn the trend will be clearly down again. Remember the output gap, and keep your eyes on consumption, productivity and personal income. Meanwhile, I am willing to be proved wrong. We'll see.

Rising petrol costs during the build-up to war in Iraq pushed up manufacturers' output prices at the fastest rate in more than two years, according to official figures on Monday.The Office for National Statistics said its output price index - which measures the cost of goods at the factory gate - rose 0.5 per cent in March, compared with the previous month. The annual rate of increase was 1.9 per cent, the highest since the end of 2000.The index was pushed up by a 2.7 per cent monthly rise in the cost of petroleum products, which were also up 12.3 per cent in the year to March.

However, the prices of raw materials used by manufacturers were unchanged between February and March, the ONS said, following large rises in the index in recent months. Analysts had predicted a slight drop, as oil prices fell back after the start of the ground war in Iraq.Crude oil prices fell 3.9 per cent between February and March, but were 24.9 per cent higher than in March 2002. But there were rises in the cost of other imported materials, imported chemicals and home produced food materials, the ONS said. Analysts said that was linked to recent falls in the value of sterling, which has also had an effect on the cost of imported raw materials - such as chemicals - used by manufacturers.The Bank of England has predicted inflation will stay above its 2.5 per cent target in the short term because of oil price pressures.In spite of Monday's rise in factory gate prices, manufacturers' margins remain under pressure, and it will be difficult for them to pass on oil price rises in an environment where global demand remains weak.
Source: Financial Times
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