UK producer price inflation reaches six-month low

Factory gate inflation slowed to a six-month low in August, as falling oil costs outweighed rising food prices caused by a surge in global wheat costs. Official figures showed today that output producer prices climbed 4.7% in the year to August, down from 5% in the year to July. Prices were unchanged between July and August as higher food prices were offset by price drops in oil, electrical and transport equipment. Input prices for materials and fuels purchased by manufacturers rose 8.1% in the year to August but fell 0.5% between July and August. The monthly drop also reflected falls in the price of crude oil which countered a 1.4% rise in the price of home produced food products – mainly due to higher wheat prices. The cost of commodities such as wheat, barley and sugar has surged on world markets in recent months due to global shortages caused by freak weather and poor harvests. Russia, the world's fourth-largest exporter of wheat, has imposed an export ban on wheat after the country's worst drought in 130 years, and a series of wildfires. The cost of home food materials is now rising at the fastest annual rate since October 2008 while imported food materials are increasing at the fastest rate since June 2009. However, crude oil price inflation more than halved to 11.8% from 24.4% in July, its lowest rate since October 2009. The producer price (PPI) figures are likely to be welcomed by the Bank of England, which has partly blamed the cost of imported goods for high consumer price inflation, which is running well above the bank's 2% target . "These inflation rates are still pretty high by ordinary standards. Note too that there are long lags between changes in producer prices and corresponding movements in consumer goods prices in the high street," said Jonathan Loynes at Capital Economics. "As such, the rises in PPI seen over the last year or so won't fully feed through to the high street until next year. Nonetheless, the fact that pipeline cost pressures now seem to be easing somewhat should provide the [Bank's] monetary policy committee with further reassurance that consumer price inflation will be back below its target at its two-to-three-year policy horizon."