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Guardian: Cost Inflation Sharply Down

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http://business.guardian.co.uk/story/0,,2166055,00.html

Cost inflation sharply down

Full coverage of interest rates

Ashley Seager, economics correspondent

Monday September 10, 2007

Guardian Unlimited

Falling oil and metals prices pushed cost inflation down sharply for British firms last month, official data revealed today.

The price of raw materials for factories fell a bigger-than-expected 0.5% in August from July, pulling the year-on-year rate of cost inflation down to just 0.7%, according to the Office for National Statistics. Analysts had expected a much smaller price drop.

Meanwhile, the prices of goods leaving the countries' factories rose only 0.1% on the month - the smallest gain since November last year - to stand 2.5% higher than a year earlier. So-called "core" output price inflation, which excludes volatile items like energy and food prices, came in at 2.4% on the back of a 0.2% monthly rise.

Article continues

The ONS said input price falls were partly offset by a rise in home produced food prices, with the price of cereals affected by tight global supplies and the prospect of reduced yields because of wet weather.

It also said any impact from foot-and-mouth disease in August was minimal because the outbreak had been small and localised.

Analysts said the figures suggest pipeline inflation pressures remain under control and will likely reinforce expectations that interest rates have peaked.

"Softer-than-expected input price pressures accompanied by evidence output prices remain contained. This release adds further modest support to the notion that UK rates will not travel higher this cycle," said Richard McGuire of RBC Capital Markets.

"While survey data have recently stoked concerns within the BoE as regards margin building on the part of UK firms actual factory price data have yet to validate these fears."

The Bank of England left borrowing costs on hold at 5.75% last week and policymakers said they are keeping a close eye on the current financial market unrest.

Separately, the Department for Communities and Local Government said house price inflation picked up to 12.4% in July from 12.1% in August. The DCLG data is based on completions rather than mortgage approvals or exchange of contracts and so tend to lag other data.

But most figures on the housing market suggest it has remained robust in the face of the five interest rate rises over the past year.

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Given the make up of the CPI, what impact will this have? Is inflationary pressure therefore easing in the UK economy? I, for one, can't see the BoE increasing interest rates next month if we see more info like this.

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No, it's a crime.

But it is the s*d*ing Guardian, they are pandering to the middle class lefties so of course they are going to produce c*ap like this.

Just wait for the readership to finally twig what is going on in the UK - it could take some time.

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