U.K. Producer Prices Climb for Fifth Month on Rising Costs of Energy, Food

U.K. producer prices rose for a fifth month in February, boosted by gasoline and food, pushing the annual rate of inflation at factory gates to the highest since October 2008.

Output prices increased 0.5 percent from January, when they rose 1.1 percent, the Office for National Statistics said today in London. The median forecast of 16 economists in a Bloomberg News survey was for a 0.6 percent increase. On the year, the pace of price growth accelerated to 5.3 percent from 5 percent.

Manufacturers are passing on higher costs to consumers after unrest in North Africa and the Middle East pushed crude oil prices above $100 a barrel. The Bank of England left its benchmark interest rate at a record low of 0.5 percent yesterday, choosing to focus on supporting the economic recovery even after consumer-price inflation accelerated to twice its 2 percent target.

“Every time we get a number that signals more inflationary pressures it will cause more problems for the majority of the Monetary Policy Committee,” Joost Beaumont, an economist at ABN Amro Bank NV in Amsterdam, said before the report. “But they really want to see clear evidence that the economic recovery is on track.”

The pound remained lower against the dollar after the data were published and was down 0.2 percent to $1.6034 as of 9:34 a.m. in London.

Price Increases

On the month, seven categories of output prices rose, two were unchanged and one declined. On the year, all 10 categories recorded increases. So-called core producer prices, which strip out food, beverages, tobacco and petroleum, rose 0.1 percent in February from January and were up 3.1 percent on the year.

Input prices rose 1.1 percent in February from the previous month and the annual price gain accelerated to 14.6 percent, the fastest since October 2008.

McBride Plc (MCB), the U.K. maker of store-brand household products, said on Feb. 8 that it is continuing to recover cost increases in 2010, “but more recent commodity market price increases are already feeding into our material costs.”

U.K. consumer-price inflation quickened to 4 percent in January, the fastest pace in more than two years. In its quarterly Inflation Report, the bank’s central projection was for price growth to peak at an average of 4.5 percent in the third quarter and ease to the 2 percent goal in 2013.

Economic Recovery

In addition to holding its key interest rate yesterday, the central bank kept it bond-purchase program at 200 billion pounds ($321 billion). Still, recent data shows the economy’s 0.6 percent contraction in the fourth quarter may have only been temporary. U.K. manufacturing production jumped the most in 10 months in January, the statistics office said yesterday.

In a separate report, the statistics office said construction output in January fell 7.7 percent on the month and was down 5.6 percent from a year earlier. The data is not seasonally adjusted. It also revised fourth-quarter construction to a 2.3 percent decline from a 2.5 percent drop. It said this will have a negligible impact on gross-domestic-product data.

A report published on March 7 showed U.K. manufacturers plan to raise prices as the cost of oil and other raw materials surge. The number of companies saying they plan to raise domestic prices exceeded those expecting declines by 39 percentage points, the Engineering Employers Federation said. That’s the highest since the data were first collected in 2000.

“Manufacturing producers are quite confident they can pass on quite a lot of the increase in commodity prices,” Beaumont at ABN said. “That’s quite a worrying sign that could lead to second-round effects.”

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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