UK industrial price pressures sticky

10th February 2012 by Simon Ward

UK producer output prices rose by a stronger-than-expected 0.5% in January, consistent with manufacturing inflationary pressures remaining sticky.

The annual increase slowed but was still a chunky 4.1% last month. Optimists, however, will point to a fall in “core” annual inflation (i.e. excluding food, beverages, tobacco and petroleum) from 3.0% in December to 2.4% – the lowest since February 2010.

The recent reduction was signalled by a decline in the price expectations balance of the CBI industrial survey during 2011 but this remains above its long-run average and recovered over year-end – see chart. The suggestion is that core inflation will stabilise around the current level or even revive.

The view here has been that the Bank of England and the consensus are, once again, overestimating disinflationary forces and that the 12-month CPI increase, rather than falling below target by late 2012, may bottom at about 2.5% in the autumn and move higher in 2013. Such a scenario, of course, would imply that yesterday’s MPC decision to expand QE by a further £50 billion was a mistake.

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3 thoughts on “UK industrial price pressures sticky”

  1. ChrisLongs says:

    Simon,
    Dare I suggest that 4% is the HMG’s real world inflation/devaluation target rather than MPC’s 2% which has not been achieved over the last 4 years! A deliberate attempt to reduce the debt/asset bubble we find ourselves in?

    1. Simon Ward says:

      I prefer to believe that the overshoot reflects poor inflation modelling rather than a deliberate attempt to miss the target. Allowing high inflation is counterproductive because it kills growth – as recent experience shows – and growth is the real solution to excessive debt.

    2. achat Viagra says:

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